In New York, a personal loan from a private lender is allowed if the rate stays below the 16% civil usury cap, interest is taxed by the IRS, the State and the City, and any request for upfront fees should alarm the borrower.
General Obligations Law: the 16% civil limit
Section 5-501 of the General Obligations Law, read with the Banking Law, sets 16% a year as the maximum rate on a loan under 250,000 dollars made by a non-professional. Above that, a New York judge can void the usurious loan.
Criminal usury above 25% under the Penal Law
Demanding more than 25% a year is the offence of criminal usury under section 190.40 of the Penal Law. This threshold targets in particular the street lenders of Queens or the Bronx who impose weekly repayments with exorbitant interest.
NYDFS: the State's financial supervisor
The New York State Department of Financial Services licenses consumer lenders and money transmitters. Any so-called private lender approaching New Yorkers online without a verifiable NYDFS licence should be rejected, even if it displays a Wall Street address.
Three layers of tax on interest received
A lender living in the five boroughs reports interest to the IRS and to the New York State Department of Taxation and Finance, and also pays New York City income tax. Our page on the taxation of private loans sets out the general principles.
Diasporas and savings circles: sou-sou, sol and paluwagan
Harlem is home to large Senegalese and Guinean communities, Brooklyn to many Haitians and Caribbean families. Rotating savings circles, called sou-sou or sol, remain common there. They rest on trust, so write down each member's turn and contribution amount.
Sending money to Dakar or Port-au-Prince
Lending to a relative back home often goes through transfer agencies licensed by the NYDFS. Keep every receipt. Fake intermediaries who demand a release fee are described on our page about the international transfer loan scam.
High rents and stopgap loans between roommates
With rents among the highest in the country, many young professionals advance a security deposit or a month's rent to a roommate. Even for 2,000 dollars, a dated email exchange or a simple promissory note prevents later disputes.
The DCWP, the City's consumer protection agency
New York City's Department of Consumer and Worker Protection takes complaints against local businesses and refers residents to free financial counsellors through its Financial Empowerment Centers. It also helps victims of abusive debt collection practices across the five boroughs.
Small claims court: up to 10,000 dollars
The Civil Court of the City of New York hears small claims of up to 10,000 dollars, and no lawyer is required. Hearings are often held in the evening. Larger sums go to the general Civil Court or the State Supreme Court.
Scams targeting newcomers to New York
Foreign students at Columbia or NYU, French expatriates and recently arrived workers receive loan offers on WhatsApp. The fake lender asks for opening fees in gift cards or bitcoin, then vanishes once the money has been paid.
Online platforms and New York licences
Crowdlending platforms active in New York must follow federal SEC rules and NYDFS requirements. Before investing any money, check the portal's registration with FINRA and read our comparison of peer-to-peer lending websites.
How New York compares with other US cities
The New York cap is far higher than the 10% that applies in California to a non-exempt personal loan. Our guide to peer-to-peer loans in the United States sets out the differences between states and the federal rules common to all.
Securing a private loan in the five boroughs
- Set a rate below 16% a year, fees included, to stay under the New York civil cap.
- Draft a promissory note stating that New York State law applies and that disputes go to New York courts.
- Have the signatures certified by a notary public, available in many bank branches in Manhattan.
- Transfer the funds from a US bank account and keep the statement showing the recipient's name.
- Report the interest received every year to the federal, State and City tax authorities.
- Report any fraud to the State Attorney General, the DCWP and the FTC.
Costs and caps for a loan in New York
| Item | Level | Comment |
|---|---|---|
| Civil usury, loan under 250,000 dollars | 16% a year (indicative) | Contract can be voided above it |
| Criminal usury | 25% a year (indicative) | Offence under the Penal Law |
| Small claims court ceiling | 10,000 dollars (indicative) | Civil Court of the City of New York |
| Tax on interest | Federal, State and City brackets | For a resident of the five boroughs |
| Upfront fees demanded by a stranger | Money usually lost | Classic scam to report |
Paperwork to prepare in New York
- Passport, driver's licence or IDNYC card
- Dated, signed promissory note governed by New York law
- Monthly repayment schedule in dollars
- US bank statement for each party
- Proof of income or employment letter
- Receipts for international transfers where relevant
Costly mistakes in New York
- Adding arrangement fees that push the total cost above 16%, which exposes the lender to having the contract voided.
- Handing sou-sou money to an unknown organiser recruited in a Facebook group with no written list of participants.
- Paying licence fees to a lender claiming NYDFS approval without checking its name in the official database.
- Lending cash in a taxi or a Queens restaurant without a single receipt signed by the borrower.
- Forgetting New York City income tax when declaring the interest you received from a private loan.
New York: questions about lending between individuals
Can a loan between friends in New York exceed 16% interest?
Not for a loan under 250,000 dollars made by an individual: going over the cap lets the borrower challenge the contract before a civil judge. Above 25%, it is even a crime. Have a New York lawyer check how the total cost is calculated.
Can a French speaker who has just moved to Manhattan borrow from a compatriot?
Yes, provided you sign a clear written agreement, ideally bilingual, stating the governing law and the currency. If the funds come from a euro account, keep proof of the exchange and the transfer to show the American bank where the money came from.
Does a New York notary public guarantee that the loan is valid?
No. The notary only checks the signers' identity and affixes a seal, without reviewing the rate or the fairness of the clauses. For a large amount, consult an attorney admitted to the State bar or a free legal clinic.
How do I recover an unpaid debt of 5,000 dollars in Brooklyn?
First send a written demand letter, then file a claim at the Kings County small claims court, part of the Civil Court. The procedure is inexpensive and no lawyer is required, but the judgment still has to be enforced.