An Introduction To Interest Rates In Pennsylvania
Pennsylvania residents have many options when it comes to borrowing money. Popular options in Pennsylvania include:
- Bank Loans
- Credit Card Loans
- Credit Union Loans
- Mortgage Loans
- Consumer Loans
- Auto Loans
- “Buy Here, Pay Here”
- Pawn Shops
We will examine each of these options in greater detail, as they have different regulations, stipulations, and interest rates. One thing to note: all of the above loans are personal loans. Business loans in Pennsylvania are subject to a different set of regulations and interest rates.
What Are Interest Rates?
Interest is the money that a lender makes for loaning you money (the initial loan amount to be paid back is referred to as the “principal”). Here in Pennsylvania, interest rates are regulated for many types of loans. As you will see, however, some types of loans do not have limits on interest rates. Several factors affect interest rates, including, the item being purchased, the lender, and whether or not you are a member of the military (under federal law, loans to active-duty service members are capped at 36% annual interest). If you are unsatisfied with the interest rates being offered, it pays (literally) to shop around for a better deal.
Bank/Credit Union Loans
Pennsylvanians should be advised that interest rates on bank loans are not capped. In Pennsylvania, Interest rates on credit union loans are capped at 18% (of the principal) per year. This means that if you borrowed $1,000 from a credit union, your maximum interest would be $180.
Credit Cards And Store Financing
When purchasing an item with a credit card, or with in-store financing, there is no limit to the amount of interest or fees that you may be charged. That is why we urge Pennsylvanians to use caution when purchasing items through these methods.
Consumer discount companies have a couple of options for determining interest rates. The company could charge a simple interest rate of 24% per year. The company also has the option of calculating finance/service charges case-by-case. Keep in mind that these stipulations apply to consumer discount companies that are licensed by the Pennsylvania Department of Banking and Securities. In Pennsylvania, unlicensed lenders are limited to an annual interest rate of 6% (even if they are located outside the state, or outside the country).
When borrowing money from a pawnbroker, your property (e.g. jewelry or musical equipment) is used as collateral for the loan. If you repay the loan on time, you get your property back. Keep in mind that, in Pennsylvania, pawnbrokers can charge a maximum annual interest rate of 36%, plus an annual fee of $1.
For auto loans in Pennsylvania, interest rates depend on the age of the vehicle being purchased. Loans for vehicles made within the last two years have a maximum interest rate of 18% per year. Loans for vehicles older than two years have a maximum interest rate of 21% per year. Understanding these caps may influence your decision to purchase a specific model.
Mortgages And Home Equity Loan
As with credit card loans, there is no limit to the interest and fees that a mortgage lender may charge you. These rates are often determined by your credit score The good news is that, because the mortgage industry is so competitive, banks/mortgage lenders will often extend a reasonable offer to potential homebuyers.
With home equity loans and secondary mortgages, banks are not subject to interest rate limits. Licensed mortgage lenders, however, must charge an interest rate of below 22% and an upfront fee of below 3%. Loans from unlicensed mortgage lenders (aka citizen mortgage loans) are also subject to annual fee caps.
A Note On Fees
When taking out any type of loan, you will likely have to pay fees that are not related to the interest itself. These fees include:
- Car Insurance
- Homeowner’s Insurance
- Late Fees
- Various Other Fees Allowed By Law
Due to the wide variety of fees that may be charged on a given loan, we strongly encourage borrowers in Pennsylvania to read the entire loan contract carefully, including the fine print. In some cases, it may be necessary to hire an attorney in Pennsylvania.