In Phoenix, Arizona law lets the parties agree in writing on the interest rate of a peer-to-peer loan, with 10 % a year applying otherwise, which makes the written contract all the more decisive in preventing abuse.
ARS 44-1201: freedom of any rate agreed in writing
Section 44-1201 of the Arizona Revised Statutes sets interest at 10 % a year when there is no agreement, but allows any rate agreed in writing. This flexibility, rare in the United States, means a borrower in Mesa or Glendale must reread every clause.
DIFI, the regulator of lenders in Arizona
The Arizona Department of Insurance and Financial Institutions licenses consumer lenders, mortgage brokers and money transmitters. A professional lender soliciting residents of Maricopa County without a DIFI licence that you can verify should be avoided, however attractive the offer looks.
Private notes and the Corporation Commission
Offering interest-bearing loan notes to several investors can amount to a securities offering supervised by the securities division of the Arizona Corporation Commission. Be wary of promises of a guaranteed fixed return made at real estate seminars held in Scottsdale.
Hard money and deeds of trust in real estate
The Valley's property market attracts many private lenders who finance renovations. In Arizona, these loans are often secured by a deed of trust recorded with the Maricopa County Recorder. Read our page on the private mortgage loan between individuals for more.
Canadian snowbirds and Midwest retirees
Every winter, retirees from Canada and the Midwest settle in Sun City or Mesa. They are targeted by fake lenders and bogus investment opportunities. A Canadian resident can compare with our page on the peer-to-peer loan in Canada.
Arizona flat income tax of 2.5 %
Arizona applies a flat income tax of 2.5 %, which also covers interest received by a resident lender. That interest is added to the federal 1040 return as well. A snowbird should check with a tax adviser where they are actually taxable.
Arizona State University students in Tempe
With one of the largest campuses in the country, Tempe gathers thousands of students, many of them international. Advances between roommates for rent or a car are common there, and a written message stating the amount and repayment date protects both sides.
Mexican families and cross-border transfers
A large share of Phoenix's population has Mexican roots, with close ties to Sonora. Cross-border family loans should go through licensed money transfer services. Our page on the private loan in Tijuana sheds light on the Mexican side.
Maricopa County justice courts
The county's justice courts handle small debts in a small claims division where no lawyer is needed. The ceiling has recently been changed by legislative reform, so check the current amount with the court before filing your claim with the signed contract.
Reporting fraud to the Arizona Attorney General
The Arizona Attorney General's office receives consumer fraud complaints and publishes alerts aimed at seniors. Online scams can also be reported to the FTC and to the FBI IC3 internet crime centre. Keep your transfer records and screenshots.
Extreme heat and unexpected expenses
A broken air conditioner in July, when Phoenix regularly tops 43 degrees, can require several thousand dollars at once. Urgent loan offers arriving by text at that moment often demand fees. Turn instead to a relative, a credit union or a payment plan.
What sets Phoenix apart from other cities
Arizona's freedom of contract contrasts with the 10 % cap in neighbouring California or the 9 % cap in Illinois. Our national guide compares these regimes and sets out the federal rules of the IRS, the SEC and the FTC.
Structuring a private loan in Phoenix
- Put the chosen annual rate clearly in writing, otherwise the 10 % legal rate applies.
- Draft a promissory note governed by Arizona law, with a repayment schedule and reasonable late fees.
- For a real estate loan, record the deed of trust with the Maricopa County Recorder with professional help.
- Send the funds by bank transfer and keep the confirmation showing both names.
- Report the interest to the IRS and to the Arizona Department of Revenue.
- Check any licence with the DIFI or the Corporation Commission before investing.
Indicative rates and amounts in Arizona
| Item | Value | Explanation |
|---|---|---|
| Legal rate without written agreement | 10 % a year (indicative) | ARS 44-1201 |
| Rate agreed in writing | Free (indicative) | Subject to the laws on licensed lenders |
| Arizona tax on interest | 2.5 % (indicative) | Flat rate for residents |
| Loan secured by a deed of trust | County recording fees | Check the amount with the Recorder |
| Fees demanded by an unknown lender | Likely loss | Report it to the Attorney General |
Documents to gather in Phoenix
- Arizona driver license, ID card or passport
- Promissory note explicitly stating the agreed rate
- Recorded deed of trust for a real estate loan
- Repayment schedule in dollars
- Proof of bank transfer
- Proof of tax residence for a Canadian snowbird
Typical mistakes in the Valley of the Sun
- Signing a very high-rate loan believing a cap protects the borrower, when Arizona accepts any rate agreed in writing.
- Investing in real estate notes sold at a Scottsdale seminar without checking their registration with the Corporation Commission.
- Accepting a loan to fix the air conditioning offered by text in exchange for fees payable in gift cards.
- Lending to a home buyer without recording a deed of trust with the Maricopa County Recorder.
- Overlooking, as a snowbird, the question of dual tax residence between Canada and Arizona.
Phoenix: questions about peer-to-peer lending
Is there a usury rate in Arizona for a loan between friends?
Arizona sets no general cap when the rate is agreed in writing, and applies 10 % a year when there is no agreement. Licensed lenders remain subject to specific rules. An excessive rate can still be challenged before a judge, so have the contract reviewed.
Can a Canadian retiree wintering in Mesa lend to an American neighbour?
Yes, by signing a clear promissory note in US dollars. Interest received may have to be declared in Canada and sometimes in the United States. A tax adviser familiar with the treaty between the two countries helps avoid double taxation.
What should I check before investing in a private real estate loan in Phoenix?
Ask for the broker's DIFI licence, any registration with the Corporation Commission, an independent valuation of the property and proof that the deed of trust was recorded. Refuse any promise of a guaranteed, risk-free return.
Where can I find free help in Phoenix in a dispute?
Maricopa County legal aid organisations, court self-service centres and the legal clinics of Arizona State University guide private individuals. For fraud, the Attorney General and the Phoenix police receive complaints from victims.