A question regarding what interest rate can be charged in North Carolina will almost certainly result in the classic lawyer answer of “it depends.” It depends on what type of loan is being made, the amount of the loan, how interest is compounded, the purpose of the loan, and other factors. This blog post is not meant to be an exhaustive explanation of this topic. Chapter 24 of the North Carolina General Statutes governs interest rates in North Carolina. You should speak to an attorney about your specific facts prior to deciding what rate of interest you can lawfully charge.
Promissory notes are the most common example of matters we handle where it necessary to evaluate the lawfulness of interest rates. To determine the legal interest rate on a promissory note, the first thing to consider is what amount of money is being loaned. In North Carolina $25,000.00 is a magic number when it comes to promissory notes. If the amount of the loan is in excess of $25,000.00 any rate agreed upon by the parties may be charged. In the event the loan is for less than $25,000.00 the rate can either by the noncompetitive rate for U.S. Treasury Bills plus 6%, or 16%, whichever is greater. As of this writing the rate for U.S. Treasury Bills is 4.42%. So, even with rising interest rates, it is likely 16% will remain the maximum interest rate on promissory notes under $25,000.00 for the foreseeable future.
Often, we see very high interest rates charged on short term “bridge loans.” Sometimes these interest rates are as high as 10-20% per month (120%-240% per annum). At times, lenders who make these so called “bridge loans” do the paperwork themselves, and will improperly charge unlawful interest on low dollar amount loans. By way of example, per statute, if someone borrows $20,000.00 it would be unlawful to charge them 10-20% per month in interest. However, if the loan was for $26,000.00 that would be a lawful interest rate.
An interesting question which often comes up when the rate stated in a note is too high (consider the $20,000.00 loan just discussed) is what percent of interest, if any should be due. The lender will typically argue it should be 16% since that is the highest rate allowed on loans under $25,000.00. The borrower will likely argue it should be 8% per annum, which is the legal rate of interest. As a matter of contract law, if the parties did not agree on a lawful interest rate (i.e. 16% or less on a loan of less than $20,000.00) it would stand to reason that the legal interest rate of 8% per annum should apply.
As should be apparent from this post something seemingly as simple as a promissory note can potentially have a variety of scenarios where a particular interest rate may be lawful or unlawful. If you are contemplating loaning money, it would be wise to speak with an attorney, and to provide that attorney with all of the details surrounding your contemplated loan, so that they may advise on the issues surrounding what interest rate you can charge, and more importantly collect, in connection with your loan.