L & M loaned Joan $400 so that she could buy her textbooks for the current semester.L & M's terms for repayment of the loan (including interest)are $200 in two months,$200 in four months,and another $100 at the end of the fifth month.The legal maximum rate of interest on this type of loan is six percent per annum.L & M's loan is usurious.

Question

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L & M's terms for repayment of the loan include $300 in interest ($200 in 2 months + $200 in 4 months + $100 in 5 months). This represents an interest rate of 75% per annum, which is well above the legal maximum rate of 6% per annum. Therefore, the loan is usurious.

L & M Loaned Joan $400 So That She Could