Arkansas Loan Agreement

Introduction

Key Things to Know

1. 1

   An Arkansas loan agreement writes down the lender's money, the borrower's promise to repay, the amount, the rate, and the due dates; where the contract names no rate the legal rate is 6 percent per year, and a non-bank lender may never charge more than the 17 percent constitutional maximum.

2. 2

   Arkansas caps interest in its constitution. Under Arkansas Constitution Amendment 89, Section 3, the maximum lawful rate on any non-bank contract is 17 percent per year. A private lender must keep the total interest at or below 17 percent, which is unusual because the limit sits in the state constitution rather than an ordinary statute.

3. 3

   Banks are exempt from the 17 percent cap. Federally insured depository institutions may charge the rate allowed by federal law, so a bank loan can exceed 17 percent while a private, non-bank loan cannot. This split is the key Arkansas rule to keep in mind.

4. 4

   If a written loan agreement does not state a rate, Arkansas sets the rate at 6 percent per year (Arkansas Code Section 4-57-101). Always write the agreed rate into the agreement, up to the 17 percent ceiling, so this 6 percent default does not apply by accident.

5. 5

   You do not need a license to make an occasional private loan, and no Arkansas state small-loan license lets a private lender exceed 17 percent. A one-off personal loan is fine as long as the rate stays at or below the constitutional cap.

6. 6

   Put the loan in writing and keep a late fee within the cap. A written, signed agreement is far easier to enforce, and any late charge should be a reasonable estimate of the lender's actual costs, with total interest and charges staying at or below 17 percent per year.

7. 7

   Spell out default and acceleration, and mind the deadline to sue. Define what counts as default, include an acceleration clause so the lender can demand the whole unpaid balance at once, and remember a lawsuit on a written obligation must be filed within five years (Arkansas Code Section 16-56-111).

Arkansas Requirements for Loan Agreement

• Maximum Interest Rate (Constitutional 17 Percent Cap)

  Arkansas caps interest in its constitution. Under Arkansas Constitution Amendment 89, Section 3, the maximum lawful rate on any non-bank contract is 17 percent per year. A private lender must keep the total interest at or below 17 percent. State the rate as a number, and never exceed the constitutional ceiling on a private Arkansas loan.

• Banks Are Exempt From the Cap

  Federally insured depository institutions may charge the rate allowed by federal law and are not bound by the 17 percent constitutional cap. This split is the key Arkansas rule: a bank loan can exceed 17 percent, but a private, non-bank loan cannot. Confirm whether the lender is an exempt institution before relying on any higher rate.

• Legal Rate When the Contract Is Silent

  If a written loan agreement does not state an interest rate, Arkansas sets the rate at 6 percent per year (Arkansas Code Section 4-57-101). Always write the agreed rate into the agreement, up to the 17 percent constitutional ceiling, so this low 6 percent default does not apply by accident.

• Lender Licensing

  An individual making an occasional private loan does not need a license, and Arkansas has no state small-loan license that would let a private, non-bank lender charge more than the 17 percent constitutional cap. So a private lender is simply bound by that ceiling. If you plan to lend on a repeated, commercial scale, confirm whether any other regulatory regime applies before you lend.

• Put the Loan in Writing

  A loan need not be written to be enforceable in Arkansas, but writing it down is strongly advised. To set any rate above the 6 percent default, up to the 17 percent cap, state the rate in writing (Arkansas Code Section 4-57-101), and a written obligation carries a five-year period to sue (Arkansas Code Section 16-56-111). Have both parties sign and date the agreement and keep a copy.

• Late Fees Must Stay Within the Cap

  Arkansas does not set a flat statutory late-fee cap for a private written loan, but any late fee plus interest must keep the effective rate at or below the 17 percent constitutional maximum on a non-bank loan (Amendment 89, Section 3). Set any late fee as a reasonable estimate of the lender's actual costs from a late payment, not as a penalty, and watch the total against the cap.

• Default and Acceleration

  Define default clearly, usually a payment missed past a stated grace period, a broken promise in the agreement, or the borrower insolvency. Include an acceleration clause so that on default the lender may declare the entire unpaid balance of principal and accrued interest immediately due. Stating any required notice and cure period avoids disputes about whether acceleration was proper.

• Time Limit to Sue on the Debt

  A lawsuit to collect on a written loan obligation must generally be filed within five years in Arkansas, running from the default (Arkansas Code Section 16-56-111, covering actions to enforce written obligations). Keeping a signed written agreement gives you a clear, provable claim. Confirm the current deadline before filing, since it can turn on when the last payment or written acknowledgment was made.