Unlawful Loan

DEFINITION of 'Unlawful Loan'

A generic term used to describe the act of giving money to another party in exchange for future repayment of the principal amount plus interest in a way that breaks a law. Examples include loans with illegally high interest rates, loans in amounts exceeding legal lending limits and loans that disguise their true cost in violation of the Truth in Lending Act.

BREAKING DOWN 'Unlawful Loan'

The Truth in Lending Act applies to most types of credit, whether it be closed-end credit (such as an auto loan or mortgage) or open-ended credit (such as a credit card). The Act regulates what companies can advertise and say about the benefits of their loans or services.