Michigan Statutory Interest 2026: How the 5% Legal Rate Is Calculated

Michigan's 5% Legal Rate: What MCL § 438.31 Covers

MCL § 438.31 is Michigan's foundational statute for interest on money obligations. It establishes 5% per year as the legal rate of interest — the rate that applies whenever money is legally owed but the parties have not agreed to a different rate in a written contract. This is sometimes called the "statutory rate," the "legal rate," or the "default rate."

What the 5% rate applies to. The 5% rate applies to general money obligations: informal loans between individuals, business debts where no contract specifies a rate, overdue invoices without a stated late-fee rate, and other situations where the law needs a number and no contract provides one. It is the catch-all for Michigan interest law.

What the 5% rate does not automatically apply to: - Court judgments (those use MCL § 600.6013) - Consumer loans (regulated under separate Michigan consumer finance statutes) - Mortgage and real estate transactions (governed by Michigan mortgage law) - Transactions where the parties agreed to a specific rate in writing (governed by that rate, up to 7%)

Simple interest, not compound. The 5% statutory rate produces simple interest: $10,000 × 5% = $500 per year, every year, on the same original principal. It does not compound. Year two does not charge 5% on $10,500.

How long has 5% been Michigan's statutory rate? The 5% rate under MCL § 438.31 has been stable for a long time. Unlike Michigan's judgment interest rate, which resets every six months based on T-note auctions, the statutory 5% is fixed by statute and does not float with market rates. This makes it predictable for planning purposes — but it also means it can diverge from market rates in high-interest-rate environments.

When 5% applies in practice. If you lend $20,000 to a business partner with no paperwork, and they fail to repay, Michigan courts would apply 5% per year as the default interest rate on the overdue amount if you sue and obtain a judgment (though note: the pre-judgment rate would be 5% under § 438.31, and the post-judgment rate would switch to the MCL § 600.6013 judgment rate). The distinction between pre-judgment interest at 5% and post-judgment interest at 4.959% matters in cases where recovery takes years to finalize.

For the authoritative text, see legislature.mi.gov — search for MCL § 438.31.

Written Contracts: When Parties Can Agree to Up to 7%

Michigan allows parties to agree by written contract to an interest rate higher than 5% — but that rate cannot exceed 7% per year. MCL § 438.31 itself permits parties to contract for a rate higher than the legal 5%; MCL § 438.32 then defines the usury ceiling of 7% and sets out the consequences for exceeding it.

When 7% applies. If two parties sign a written agreement specifying 6%, 6.5%, or 7% annual interest on a loan or obligation, that contractual rate controls. The 5% statutory default is displaced by the contract. The agreement must be in writing — a verbal agreement to pay a higher rate is not enforceable above 5% in Michigan for obligations covered by MCL § 438.31.

Why 7% is the ceiling for general obligations. Michigan's usury statute at MCL § 438.32 prohibits charging more than 7% per year for the class of transactions covered by § 438.31. Many consumer lending transactions and commercial loans have separate statutory frameworks (discussed below), but for the general category of money obligations, 7% is the maximum permissible contractual rate.

The practical gap between 5% and 7%. For a $100,000 obligation: - At 5%: $5,000 per year interest - At 6%: $6,000 per year interest - At 7%: $7,000 per year interest

The difference between the statutory default (5%) and the contractual maximum (7%) is $2,000 per year on a $100,000 balance. For smaller amounts — $10,000 loans between individuals — the gap is $200 per year. Whether the difference is worth drafting a written agreement depends on the relationship and the size of the obligation.

Daily interest at 5% and 7%: - 5% on $10,000: ($10,000 × 0.05) ÷ 365 = $1.37 per day - 7% on $10,000: ($10,000 × 0.07) ÷ 365 = $1.92 per day - 5% on $100,000: $13.70 per day - 7% on $100,000: $19.18 per day

Consumer and commercial exceptions. Not all lending in Michigan is capped at 7%. Michigan's Regulatory Loan Act, the Secondary Mortgage Loan Act, and other statutes govern consumer lending, and many commercial loans exceed 7% under federal law preemption (National Bank Act, etc.). The 5%-to-7% framework under §§ 438.31–438.32 applies to the general category of money obligations, not to heavily regulated consumer credit products.

Michigan's Three Interest Rates: 5%, 7%, and 4.959% — Which Applies?

Michigan has at least three distinct interest rate regimes that apply in different contexts. Confusing them is the most common source of error in Michigan interest calculations.

Rate 1 — Statutory/Legal Rate: 5% per year (MCL § 438.31) When it applies: Money is owed, no contract specifies a rate, and the obligation is not a court judgment. Pre-judgment interest in some cases. Fixed or floating: Fixed by statute — does not change with market rates. Key feature: The catch-all default. If no other rate applies, 5% is Michigan's answer.

Rate 2 — Maximum Contractual Rate: up to 7% per year (MCL § 438.32) When it applies: Parties have a written contract for money at a rate above 5%. Fixed or floating: Fixed in the contract. Key feature: Usury ceiling for general obligations. Exceeding 7% triggers the consequences in MCL § 438.32.

Rate 3 — Judgment Interest Rate: 4.959% for H2 2026 (MCL § 600.6013) When it applies: After a money judgment is entered by a Michigan court. Fixed or floating: Floating — resets every January 1 and July 1 based on 5-year Treasury Note auctions plus adjustments. Key feature: Applies to post-judgment interest. This rate is currently (H2 2026) slightly lower than the statutory 5%, but that relationship can reverse in different rate environments.

The critical distinction: same situation, different rates. Consider a business dispute. Before a lawsuit is filed, money is owed without a contract rate — 5% statutory applies to pre-judgment interest. After a court enters judgment, interest on the unpaid judgment amount switches to 4.959% under MCL § 600.6013. The switch happens automatically at the moment of judgment. You cannot choose which rate applies based on which is higher.

Why the rates are currently so close. As of H2 2026, the 5-year Treasury yield plus the statutory adjustment produces a 4.959% judgment rate — only 0.041% below the statutory 5%. For a $100,000 judgment, the annual difference is $41. But the two rates come from different statutes, have different reset mechanisms, and apply at different stages of a dispute. Treating them as interchangeable in legal pleadings or accounting is an error.

The contractual 7% rate is different in kind from both of the others. It requires a written agreement and is a ceiling, not a floor. A party suing on a 7% contract cannot collect at 7% after judgment — post-judgment interest drops to MCL § 600.6013's floating rate, unless the contract or order specifies otherwise and the court accepts that provision.

For Michigan statutory interest calculations (not judgment interest), use TheLegalCalc's Michigan Statutory Interest Calculator at /statutory-interest-calculator/michigan. For Michigan judgment interest specifically, see the companion article on MCL § 600.6013.

Step-by-Step: Calculating Michigan Statutory Interest

Calculating simple interest under MCL § 438.31 at 5% (or up to 7% by contract) is straightforward with the right inputs. Here is the process:

Step 1 — Identify the principal. The principal is the amount owed. For an unpaid loan, this is the loan balance. For a business debt, it is the invoice amount or other agreed sum. Do not include prior interest in the principal for simple-interest calculations.

Step 2 — Identify the applicable rate. Is there a written contract specifying an interest rate? If yes, use that rate (up to 7%). If no, use the 5% statutory rate under MCL § 438.31.

Step 3 — Determine the time period. Interest accrues from the date the obligation was due (or from the date of demand, if specified in the contract or applicable to the claim). Count the number of days, months, or years the obligation has been overdue.

Step 4 — Apply the formula. Annual interest: Principal × Rate. Monthly interest: (Principal × Rate) ÷ 12. Daily interest: (Principal × Rate) ÷ 365.

Examples at 5%: - $5,000 for 1 year: $5,000 × 5% = $250 - $5,000 for 6 months: $5,000 × 5% × (6/12) = $125 - $5,000 for 45 days: $5,000 × 5% × (45/365) = $30.82 - $25,000 for 2 years: $25,000 × 5% × 2 = $2,500 - $100,000 for 3.5 years: $100,000 × 5% × 3.5 = $17,500

Examples at 7% (by written contract): - $5,000 for 1 year: $5,000 × 7% = $350 - $25,000 for 2 years: $25,000 × 7% × 2 = $3,500 - $100,000 for 3.5 years: $100,000 × 7% × 3.5 = $24,500

Step 5 — Total the obligation. Total amount owed = Principal + Accrued Interest. Add the interest calculated in Step 4 to the principal from Step 1.

Step 6 — Check the rate. Before relying on this figure for legal proceedings, confirm whether the obligation at issue is truly governed by MCL § 438.31, or whether a different Michigan statute (MCL § 600.6013 for judgments, or a consumer lending statute) applies. Using the wrong rate in a complaint or accounting can create disputes.

Use TheLegalCalc's Michigan Statutory Interest Calculator at /statutory-interest-calculator/michigan to automate these calculations. Enter the principal, the applicable rate (5% or up to 7% if contracted), and the date range. The tool computes annual, monthly, and daily interest and provides the total obligation.

Usury in Michigan: The Consequences of Charging Too Much (MCL § 438.32)

Michigan's usury statute at MCL § 438.32 is severe by modern standards: a lender who charges more than the maximum permitted rate under § 438.31 — more than 7% per year for general money obligations — does not simply lose the excess interest. The lender loses all interest.

The all-or-nothing forfeiture. MCL § 438.32 provides that if a person "directly or indirectly" takes or receives more than the legal rate of interest, the entire interest — including amounts already collected — is forfeited. The borrower has a right to recover that forfeited interest from the lender. This is not a partial adjustment; it is total forfeiture.

Attorney fees. MCL § 438.32 also allows the borrower to recover reasonable attorney fees in an action to recover usurious interest. This fee-shifting provision makes usury claims economically viable even for smaller amounts, because the borrower's attorney fees are recoverable if they prevail.

Criminal usury. MCL § 438.41 addresses criminal usury — charging interest in excess of 25% per year (not the same as the civil 7% ceiling). The civil and criminal thresholds are different: 7% is the civil ceiling for covered transactions; 25% is the threshold for criminal exposure. Between 7% and 25%, a lender faces civil forfeiture under § 438.32 but not criminal liability under § 438.41.

Common sources of usury risk. Informal loans between individuals — especially where the lender tries to add "origination fees," "late charges," or "points" that, when annualized, exceed 7% — can trigger usury exposure under Michigan law. The calculation of whether a rate is usurious looks at the economic equivalent of all charges, not just the stated interest rate. A $1,000 loan with a $100 fee due at 90 days has an effective annual rate well above 7%.

Important exceptions: many transactions are not covered by the 7% cap. Federally chartered banks and credit unions can often exceed 7% under federal preemption. Consumer installment loans, payday-type products, and credit cards are regulated under Michigan's consumer finance laws with different (often higher) permissible rates. The 7% civil usury ceiling under MCL § 438.32 applies to the class of transactions covered by MCL § 438.31 — general money obligations — not to every type of lending in the state.

For lenders. Before charging above 5% on any obligation governed by MCL § 438.31, ensure you have a written contract specifying the rate, and that the effective annualized rate does not exceed 7%. Consult a Michigan attorney if you are unsure whether your fee structure is covered by the civil usury ceiling.

Statutory vs Judgment Interest: The Critical Difference

The single most common error in Michigan interest calculations is using "statutory interest" and "judgment interest" as if they were the same thing. They are not. They apply at different stages of a dispute, they come from different statutes, and they currently produce different (though similar) rates.

Pre-judgment vs. post-judgment: the timeline. Before a lawsuit is filed and before a court enters judgment, any interest owed on the underlying obligation is typically governed by MCL § 438.31 — the 5% statutory rate (or the contractual rate if a written agreement exists). After a Michigan court enters a money judgment, interest on the unpaid judgment amount is governed by MCL § 600.6013 — the floating judgment interest rate.

The MCL § 600.6013 rate for H2 2026 is 4.959%. This is calculated based on 5-year U.S. Treasury Note auctions. The Michigan courts publish this rate every January 1 and July 1. For H1 2026, the rate was also approximately in that range. For the exact current rate, check the Michigan Courts website at courts.michigan.gov.

What happens at the moment of judgment. When a court enters a judgment for $50,000, two things happen simultaneously: (1) the pre-judgment interest calculation under MCL § 438.31 ends (you calculate it from the date the obligation was due through the date of judgment), and (2) post-judgment interest under MCL § 600.6013 begins running on the judgment amount. The rates are different, they apply to different amounts at different times, and they cannot be blended.

A worked example. You lend $50,000 to a colleague on January 1, 2024. No written interest rate is specified. They default. You sue and obtain a judgment on January 1, 2026 — exactly two years later.

Pre-judgment interest at 5% (MCL § 438.31): $50,000 × 5% × 2 years = $5,000. The judgment amount entered by the court: $50,000 principal + $5,000 pre-judgment interest = $55,000. Post-judgment interest at 4.959% (MCL § 600.6013): on the $55,000 judgment balance from January 1, 2026 forward. At 4.959%, this is approximately $2,727 per year until paid.

Why the distinction matters for settlement. If you are settling a Michigan dispute and the other side offers a number that ignores pre-judgment interest under § 438.31, you may be leaving real money on the table. If you are a defendant and the plaintiff is claiming post-judgment interest at the wrong rate — or applying judgment interest to a pre-judgment period — the error can add thousands of dollars to the claimed balance.

Use the correct calculator for each phase. TheLegalCalc's Michigan Statutory Interest Calculator at /statutory-interest-calculator/michigan covers pre-judgment interest under MCL § 438.31. For post-judgment interest under MCL § 600.6013, see the Michigan Judgment Interest Calculator at /judgment-interest-calculator/michigan.

When Does Michigan Statutory Interest Start Accruing?

The start date for Michigan statutory interest under MCL § 438.31 depends on the nature of the obligation and any contract terms or court determinations that define when the money became due.

The general rule: interest begins when the money is legally owed. For a loan with a specific repayment date, interest begins on the day after repayment was due. For an invoice with net-30 terms, interest begins on day 31. For a money obligation without a specific due date, interest may begin from the date of demand.

Pre-judgment interest in litigation. Michigan courts have addressed when pre-judgment interest begins in the context of civil litigation. MCL § 600.6013 (judgment interest) explicitly starts post-judgment, but pre-judgment interest under MCL § 438.31 begins earlier — typically from the date the claim accrued or the date the obligation was due. Some courts use the complaint filing date as a practical marker. This is a legal question that a Michigan attorney familiar with your specific claim type should address.

For simple money obligations. If you have a clear written note or invoice showing when payment was due, use that date as your start date. Interest accrues daily from that date at the applicable rate.

Example — net-30 invoice. A Michigan business delivers $10,000 of services on September 1, 2026. Payment terms: net 30. Payment was due September 30, 2026. If unpaid, statutory interest at 5% begins October 1, 2026. - Interest from October 1 through December 31 (92 days): $10,000 × 5% × (92/365) = $126.03 - Interest for all of 2027 (full year): $10,000 × 5% = $500 - Running total by December 31, 2027 (15 months): $10,000 × 5% × (457/365) = $625.48

Disputed start dates. If a borrower or debtor claims the money was not yet due — for example, arguing that a condition precedent to payment was not satisfied — the start date becomes a contested fact. Courts resolve these disputes based on the contract, course of dealing, and applicable law.

Demand letters and interest. Sending a written demand for payment and specifying that interest will accrue from a particular date creates a paper trail. Michigan courts look to what the parties understood about when payment was required. A demand letter citing MCL § 438.31 and specifying the accrual date is stronger evidence than silence.

Calculate Michigan Statutory Interest and Official Resources

TheLegalCalc's Michigan Statutory Interest Calculator at /statutory-interest-calculator/michigan applies MCL § 438.31 at 5% per year (or your specified contractual rate up to 7%). Enter the principal amount, the applicable interest rate, and the start and end dates. The calculator provides annual, monthly, and daily interest and the total amount owed.

This estimate is for planning purposes — not for use as a certified legal calculation in court filings without independent verification. For litigation purposes, consult a Michigan attorney who can verify the applicable rate and start date for your specific claim.

Official Michigan resources:

Michigan Legislature — MCL § 438.31. The official text of Michigan's statutory interest rate statute is available at legislature.mi.gov. Search for "MCL 438.31" to access the current version. This is the authoritative source for the 5% legal rate and the conditions under which it applies.

Michigan Legislature — MCL § 438.32. Search for "MCL 438.32" at legislature.mi.gov for the usury statute — the 7% cap on contractual interest rates and the forfeiture consequences for exceeding it.

Michigan Legislature — MCL § 600.6013. Search for "MCL 600.6013" for the judgment interest statute and its current floating rate mechanism.

Michigan Courts. The Michigan Courts website at courts.michigan.gov publishes the current judgment interest rate under MCL § 600.6013. For H2 2026, the rate is 4.959%. Confirm the current rate at courts.michigan.gov before relying on any published figure for active litigation.

State Bar of Michigan. The State Bar at michbar.org can help locate a Michigan attorney with experience in contract and commercial disputes, debtor-creditor law, or the specific area of your claim. Michigan statutory interest issues arise in many practice areas — commercial litigation, family law, real estate, and estate matters — so identify an attorney with relevant subject-matter experience.