A usurious contract is an agreement between two parties in which there is a higher interest rate on a loan than is permitted by the law.

What is considered usurious?

A loan will generally be considered usurious when the interest rate is higher than the max amount set forth by statute. ... If a loan is ruled usurious, the originator may face stiff civil penalties.

What are the effects of usurious loan agreements?

If lenders have market power, then usury laws could decrease the interest rates charged by shifting the market toward the price that would be obtained in the absence of market power. Even if lenders have no market power, they may be in inelastic supply of credit.