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Kentucky Interest Rates Laws

Sometimes, consumers are tricked into agreeing to high interest rates based on advertisements for 0% interest or no fees that hide the real interest rate in small print and complicated wording. However, consumers have legal rights and protections. How high of an interest rate can a company charge? What about a mortgage lender? There are also protections against excessive charges and interest rates on home loans.

The table below describes the interest rate laws in Kentucky.

Code Sections Kentucky Revised Statutes Chapter 360 – Interest and Usury
Legal Maximum Rate of Interest The maximum legal interest rate in Kentucky is 8% unless there’s an agreement otherwise. Even then, parties can’t agree to a rate more than 4% above the discount rate of the Federal Reserve Bank or 19%, whichever is less, for a principal amount of $15,000 or less, or any rate for a loan of $15,000 or more as provided by the contract.
Interest Rates on Judgments Generally, the interest rate on court judgments is 12%. However, if the obligation came from a written contract specifying a different interest rate, then contract rate applies, whether it’s lower or higher.
High-Cost Home Loans Kentucky law attempts to address predatory lending by limiting residential mortgages of $15,000 to $200,000 with closing costs over $3,000 or 6% of the total loan. Lenders can’t charge prepayment penalties unless an offer without a prepayment penalty is provided to the borrower in writing. If rejected, the penalty can’t be over3% for the first year or 2% for the second year or 1% of the third year or anything after three years.

Also lender’s can charge feeds to modify or renew a high-cost home loan or defer any payments unless the fees are less than half of any fees to refinance or the borrower is in default and it’s in the borrower’s best interest. Late payments can’t be more than 5% of the amount due or $10 (whichever is greater). Also, high-cost home loans can’t be made unless the lender reasonably believes the borrower can pay a home loan, but not having more than 50%of their gross income payable as debts or having liquid assets to pay 50% of the principal of the loan.

Lenders must also make available an audio-visual media explanation of the borrowers' rights and responsibilities and not make an unfair or oppressive mandatory arbitration clause as part of the loan. There are many other aspects of this law meant to protect borrowers from unreasonable mortgages and high foreclosure rates.
Exceptions There are some exceptions to the usual maximum interest rates in Kentucky, including:
  • Banks can charge a minimum loan fee of $10, even if the legal interest would be less (typically due to the small amount of the loan).
  • Credit union can’t charge more than 2% per month on unpaid balances for their loans, they also can’t lend to any member a loan worth more than 10% of the credit union’s capital.
  • Small loans of under $15,000 may charge at a slightly different rate of 3% per month when the original principal was less than $3,000 or 2% per month on any loan between $3,000 and $15,000, other rules apply to these fees and payment schedules.
Penalty for Unlawful Interest Rates (Usury) Knowingly charging an interest rate greater than the law permits forfeits the entire interest of the debt, in addition, the borrower may recover twice the amount of interest he or she has paid. However, there’s a time limit to sue or statute of limitation of two years from the time the usurious transaction occurred.

Lenders of high-cost home loans may have to change the terms of the loan or provide “appropriate restitution” such as reimbursing fees, interest, or other charges the lender made to return the borrower to the position they would’ve been in had the mortgage been lawful to begin with.

If you feel you’re being charged an unlawful interest rate on any product or loan in Kentucky, you should speak to an experienced Kentucky consumer protection lawyer. There may be some options to negotiate a better rate or sue for your financial losses.

Note: State laws change regularly, contact an attorney or conduct your own legal research to verify any laws you’re researching.

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