Your California Loan Cap Rises on November 1. At $10,000 It Disappears Completely.

If you are about to sign an installment loan in California for somewhere between $2,500 and $10,000, the legal ceiling on your rate goes up on November 1. Your credit score has nothing to do with it.

Sign in October and the most a lender can charge is 39.63% simple annual interest. Sign in November and it is 39.88%.

The cap is a formula, not a number

Financial Code section 22304.5 lets a finance lender charge, on a loan “of a bona fide principal amount of at least two thousand five hundred dollars ($2,500) but less than ten thousand dollars ($10,000),” up to “an annual simple interest rate of 36 percent per annum plus the Federal Funds Rate.”

Which federal funds rate? The statute is precise about it: the one published in the Fed’s H.15 release and “in effect as of the first day of the month immediately preceding the month during which the loan is consummated.”

So an October loan is governed by the September 1 reading. New York Fed data puts the effective federal funds rate at 3.63% that day. Add 36 and you get 39.63.

Then the Fed raised its target range on September 16, to 3-3/4 to 4 percent. The effective rate has printed 3.88% every day since September 17. The next FOMC meeting is not until October 27 and 28, which means the October 1 reading is already all but set at 3.88%. That is the number November loans inherit.

Here is what nobody mentions when a cap like this passes: it floats. When the Fed tightens, your consumer protection loosens.

The quarter point is not the story

A quarter point on a $5,000 balance is about $12 a year. Small, and we are not going to pretend otherwise.

This is the part that matters: at $10,000, the ceiling stops existing.

Sections 22303 and 22304 each say they do not apply to a loan of $2,500 or more. Section 22304.5 runs up to $9,999.99. Above that, no section of the code sets a numeric rate ceiling on a consumer installment loan. When AB 539 passed as the Fair Access to Credit Act, the $10,000 line is where the new cap stopped, and nothing was put behind it.

The only backstop is section 22302, which ties loan contracts to Civil Code section 1670.5 and says “a loan found to be unconscionable pursuant to Section 1670.5 of the Civil Code shall be deemed to be in violation of this division.” That is a lawsuit, a judge, and months. It is not a ceiling.

So ask yourself which loan size a high-rate lender would rather write.

Do this before you sign

Keep the principal under $10,000. If the person across the desk suggests rounding up, or pads the amount with a cushion that lands you at exactly $10,000, that is the most expensive sentence in the conversation. Say no.

Get the rate in writing as an APR, not as a monthly “fee.” Check that the term is at least 12 months, because section 22334(c) requires it in this bracket. Check the administrative fee, which section 22305 caps at $75 on loans above $2,500 and which is fully earned the moment the loan is made.

Then price a credit union small-dollar loan before you sign anything near 39%. Our loan calculator will show total interest at both rates side by side, and the loans hub and best loans pages are the quicker comparison.

If the loan can wait a few weeks, October beats November by a quarter point. Not life-changing. Free, though.

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