Usury - Explained
What is Usury?
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What is Usury?
Usury describes an act of lending money to borrowers with high and exorbitant interest rates. The interest rates of money borrowed under usury agreement is often higher than what the law permits. Some countries and religions regard usury as an illegal act because this act enriches the lender at the detriment of the borrower. Initially, usury entails charging any amount as interest on loans but it later extended to exorbitant charges and interest rates on loans. Usury became popular in England during the reign of King Henry VIII. A loan is regarded usurious when there is an agreement that the debtor would pay back a much larger amount.
How Does Usury Work?
Despite that there were many laws and religious beliefs that discouraged usury practice, many lenders still engaged in usury as far back as the 16th century. Usury is an unfair practice that benefits neither the society nor the borrower but it only benefits the lender in an unethical way. This is why many religions such as Judaism, Islam, Christianity and others frown against Usury as it stands against their core values. Also, interest rates in usury are much higher that what the laws of certain states stipulate and this is seen as illegal. There were many revolts against usury such as the Protestant Reformation in the 16th century that distinguished usury and the acceptable practice of money lending. Usury laws are formulated to protect borrowers from excessive interest rates that lenders demand on loans. These laws provide the required interests that should be charged on loans. Usury laws also protect individuals from predatory lenders, these are lenders (predators) that impose unfair loan terms and charge abusive interest rates on loans. Oftentimes, groups or individuals who have little or no understanding of rules of finance fall victims of predatory lending. Usury laws regulate interest rates on loans and also the percentage charged by payday or alternative lenders. Examples of loan arrangements where predatory lending os paramount are payday loans, small dollars or advances loans.