DEFINITION of Usury Rate
A usury rate is a rate of interest that is usually considerably above current market rates. Usury rates are often charged by unsecured lenders on loans. These rates can be illegal in some countries and situations because they often take advantage of unsuspecting and/or more vulnerable individuals.
BREAKING DOWN Usury Rate
Several sources will broadcast prevailing, reasonable rates of interest for consumers and businesses with regards to personal, auto, student, home, and other forms of loans. TreasuryDirect.gov, the Wall Street Journal’s Marketwatch, and other sources will highlight real-time and/or monthly updates on such rates. These can help you understand if the rates a lender has charged you are excessive.
Usury Rate and Predatory Lending
A usury rate can often be a sign of predatory lending. In the U.S., the FDIC broadly defines predatory lending as “imposing unfair and abusive loan terms on borrowers." Predatory lenders, often called payday lenders, will generally target demographic groups with less access to and understanding of more secure forms of financing in the United States. Predatory lenders will often charge extremely high interest rates and require significant collateral in the likely event of a borrower default.
An example of a usury rate would be a payday loan (or any small-sum, short-term unsecured loan).
History of Usury Rate
The practice of usury has occurred since the early days of financial systems. Given that lending during these times often occurred between individuals and small groups, rather than established banks as they do today, firm social standards were created surrounding the practices of lending. These coincided with many prevailing religious beliefs of the time.
Usury first became common in England under King Henry VIII and originally corresponded with the charging of any amount of interest on loans. Over time the term usury evolved to mean charging excessive interest. Specifically, Judaism, Christianity and Islam take firm stances against usury. Old Testament passages condemn the practice of usury, especially when lending to less wealthy individuals.
In the Jewish community, the condemnation of usury created the impetus for only lending money at interest to outsiders. This also led to the Christian tradition against money lending all together. Some Christians believe that those who lend should not expect anything in return. The Protestant Reformation in the 16th century helped to create the distinction between usury and lending money more generally at low or reasonable interest rates. Islam, on the other hand, has historically not made such a distinction.