“It is not my interest to pay the principal, nor my principle to pay the interest.”
—Richard Brinsley Sheridan
Rates of interest may be established by private contract or by law.
In Arizona, interest on any loan, indebtedness, or other obligation will be at the rate of 10% per annum, unless a different rate is contracted for in writing, in which event any rate of interest may be agreed to. Interest on any judgment that is based on a written agreement evidencing a loan, indebtedness or obligation that bears a rate of interest not in excess of the maximum permitted by law will be at the rate of interest provided in the agreement and must be specified in the judgment.
Unless specifically provided for in a statute or a different rate is contracted for in writing, interest on a judgment will be at the lesser of 10% per annum or at a rate per annum that is equal to one percent above the prime rate in effect on the date that the judgment is entered. The judgment must state the applicable interest rate, and it will not change after it is entered.
Certain types of lenders and interest on certain types of loans are governed by statute. Examples of these include premium finance companies and consumer lenders, both of which are prohibited from making certain types of loans having a rate of interest greater than thirty-six percent per annum.
Under the “Rule of 72,” an obligation bearing interest at the statutory rate of 10% per annum will double in amount in 7.2 years. (To determine how long it will take to double the principal amount, simply divide the interest rate into 72. The resulting number will be the number of years required.)
Note: A person who makes an interest-free loan or a reduced interest loan may be deemed by the IRS to have made a gift. The IRS will “impute” a rate of interest in such cases.
The above article is an excerpt from Arizona Laws 101: A Handbook for Non-Lawyers, 2nd Edition (Fenestra Books, 2012), by Donald A. Loose, republished with the author’s permission.
Disclaimer: Laws change constantly. Specific legal advice should be obtained regarding any legal matter. The information contained on this website does not constitute legal advice and no attorney-client relationship is created.
Donald A. Loose is an Arizona attorney, and the author of Arizona Laws 101: A Handbook for Non-Lawyers, and Estate Planning in Arizona: What You Need to Know. Mr. Loose is a regular guest on radio shows featuring local newsmaker interviews. He may be contacted at email@example.com.