Private Loans

Someone recently contacted me wanting to lend a friend a small sum and get paid back later. They just wanted a quick promissory note describing their terms.   Simple, right?   Well… as mentioned in earlier blogs, Maryland law has a lot of rules for private (non-federal bank) lenders.  Just because the parties agree doesn't mean the loan is legal.  First of all, there are usury laws.  Usury means interest (usually excessive interest) and for the good of the public, the law imposes caps on just how much interest one can charge.   

Ideally, the lender who is not totally self-serving will want to limit interest in any event.  Is it ever fair or reasonable to charge 50%, 100% or even 1000% interest?  (Most would emphatically say "no!" though I've seen pay-day loans from non-US lenders with extraordinary and patently offensive interest rates as high as these.)  


Rather than guess what a fair interest rate might be, Maryland actually has in its constitution a legal rate of interest. 

In Maryland the legal rate of interest is 6%.   Judgments have a legal rate of 10% (simple) interest.  Depending on the situation and status of the lender, other rates (up to 18% or 33%) may not be illegal.  Generally speaking federally chartered banks don't need to follow every state rule.  


But interest is not the only issue with private loans.   There may be restrictions on what the lender can take as collateral.   There may also be restrictions on the number of unlicensed loans someone can make.  There may be required disclosures.   Bottom line, if you're thinking about lending someone else money and making interest on the deal, know the law first! 

© ArdenLawFirm 2014-2018  Managing Attorney Cedulie Laumann, Esq.