Iowa Raised the Legal Rate on a $10,000 Loan to 36%. The Lobby Behind It Called That a 'Cap.'

If you’re in Iowa and a finance company or online lender offers you a $5,000 or $10,000 installment loan, the legal ceiling on what it can charge you went up on July 1. Not a little.

On a $10,000 loan paid off over five years, the most a licensed lender could charge you in interest before July was about $8,873, by our math. Now it’s about $11,680. That’s $2,806 more, and it’s legal.

Here’s how it happened. Iowa used to let its banking superintendent set the maximum rate on regulated loans, and since September 2020 that rule ran in tiers: 36% a year on the first $3,000 of your balance, 24% on the slice from $3,000 to $8,400, and 18% on the slice above that, up to $30,000. On a $10,000 balance it started around 26.6%.

House File 2329 deleted the tiers. The law now says the maximum rate “shall be three percent per month.” That’s 36% a year on every dollar, first to last. It passed the House 62 to 29 and the Senate 34 to 11, Governor Reynolds signed it in May, and it took effect July 1.

Now the part that earns scare quotes. The American Fintech Council, a fintech industry trade group, cheered the bill as a “Responsible Interest Rate Cap.” Its policy chief said that “by establishing a clear 36% interest rate cap, the state is expanding access to safe, affordable credit.” A cap holds a price down. This one raised the ceiling on every dollar above $3,000.

The group also predicted about 250,000 more Iowans a year would borrow roughly $300 million. Divide that out and it’s $1,200 a borrower, a loan size where the ceiling was already 36% before the bill.

What it costs you

Nothing changed on small loans. At $3,000 or less, the old maximum was already 36% on the whole balance. Everything bigger got more expensive at the legal max. Here’s our math, level monthly payments at the highest rate each rulebook allowed:

A $5,000 loan over three years: maximum interest went from about $2,968 to $3,245. That’s $277 more.

A $10,000 loan over five years: the payment ceiling went from $314.56 to $361.33 a month, and total interest from $8,873 to $11,680.

These are ceilings, not quotes. No lender has to charge the max. But if your credit is thin or dinged, the ceiling is the number to plan for.

The bill also swapped a fee rule. The one-time service charge on a consumer credit deal used to top out at the lesser of 10% of the amount financed or $30. Now it’s the lesser of 3% or $100. Under $1,000 financed you pay less. Above that you can pay more, up to $100 once you borrow about $3,334.

Verdict: calling a rate increase a cap is marketing. For anyone borrowing more than $3,000, this law made the worst legal deal worse.

Do this before you sign

Read the APR in the federal Truth in Lending box, not the monthly payment. A low payment on a long loan hides the rate.

Get one quote from a credit union. Federal credit unions are held to an 18% ceiling through September 10, 2027, which is half the new Iowa max.

If a lender offers to renew or “top up” a loan you signed before July 1, that’s a new contract under the new ceiling. Compare its APR to your current rate first. Run both through our loan calculator, compare total interest, and check our best loans list and the loans hub first.

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