subject: Usury: Legal And Ethical Considerations [print this page] Applying for loans nowadays is as easy to accomplish as spending. Payment is usually what makes loans difficult to handle. Unless the borrowed amount is required to be paid in break-even full, it is not hard for the borrower to pay. Lending companies, however, usually charge a significant interest rate on each loan.
Usury refers to the act of charging the borrower with an additional fee, or an interest rate, on top of the total loan amount. In the US, most lending companies charge a 15% to 30% interest rate on the amount being borrowed, not including the specific additional charges in case of late payments. This creates an impression that entering into such lending contract costs a lot more money than one may think.
There are certain laws promulgated by the government regarding usury. These laws aim at protecting the rights of both of the lender and the borrower. Historically, usury for any loan can be traced practiced as early as 5000 BC. During this time, the idea of charging a certain percentage of goods on the payment is considered reasonable, but is restricted to a certain limit that the borrower can manage.
Entering into a payday loan agreement is, most of the time, confusing to borrowers. Most borrowers expect that certain laws will protect them from high interest rates, not knowing the responsibilities they hold toward the agreement they signed. However, a signed agreement usually becomes an exemption to the usury statutes because of the apparent voluntary yield of the borrower to the interest rate offered by the lender.
Usury protects the lending company from suffering a market failure if payment is not made on the due date. To avoid market failure, lending companies may resort to a force payment requirement. One type of an indirect force payment requirement is compounding the interest per month without pay. This is burdensome for small borrowers who commit close interval periodical payment, especially payday loan applicants.
For low-interest charity loans like small-business microloans, charging usury is ethical in whatever percentage. In their aim to expand their loans to help many people through the interest, the final result of charging usury is what justifies its ethical value. For payday loan applicants entering into agreements or contracts, the best way to avoid legal issues regarding usury is to learn the existing laws and read the contract carefully before signing.
