Connecticut Loan Agreement
A Connecticut loan agreement sets the loan terms and caps most private-loan interest at 12 percent per year, with 8 percent applying if the rate is left blank.
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Introduction
Connecticut law treats a loan agreement as a written contract to lend money and be repaid with interest, and on an ordinary loan that interest cannot be charged at more than 12 percent per year. In Connecticut the interest you can charge on most private loans is capped. Under Connecticut General Statutes Section 37-4, no person shall loan money and charge interest at a rate greater than 12 percent per year. Statutory exceptions in Section 37-9 lift that cap for bank and credit union loans, real property mortgages over 5,000 dollars, and business or commercial loans over 10,000 dollars. If a written agreement does not state a rate, the law fills the gap at 8 percent per year (Connecticut General Statutes Section 37-1). Making an occasional private loan does not require a license: a small loan license is needed only by a person who makes small loans, meaning loans of 15,000 dollars or less at an annual percentage rate over 12 percent, as a business (Connecticut General Statutes Sections 36a-555 and 36a-556). Once the rate is set, a sound Connecticut loan agreement names the parties, the principal, the interest rate as a number, the repayment schedule, any late fee, and what counts as default. It should include an acceleration clause, which lets the lender demand the entire unpaid balance at once if the borrower misses payments. Put the terms in writing: a lawsuit on a written contract can be filed for six years (Connecticut General Statutes Section 52-576), and a clear signed agreement is what protects both sides if the loan is later disputed. DocDraft builds your Connecticut loan agreement from your facts, with attorney review available before you sign.
Key Things to Know
- 1
A loan agreement in Connecticut records the lender's advance and the borrower's promise to repay, along with the amount, the rate, and the payment dates; where the parties agree to nothing on rate the legal rate is 8 percent, and the general lending ceiling is 12 percent per year.
- 2
Connecticut caps most private-loan interest at 12 percent. Under Connecticut General Statutes Section 37-4, no person shall loan money and charge interest at a rate greater than 12 percent per year. This is a strict ceiling on a covered private loan, so keep the total interest at or below 12 percent.
- 3
Some loans are excepted from the 12 percent cap. Section 37-9 lifts the limit for bank and credit union loans, real property mortgages over 5,000 dollars, and business or commercial loans over 10,000 dollars, so those loans may carry a higher agreed rate.
- 4
If a written loan agreement does not state a rate, Connecticut sets the legal rate at 8 percent per year (Connecticut General Statutes Section 37-1). To charge up to the 12 percent cap on a covered loan, state the agreed rate in a written agreement.
- 5
You do not need a license to make an occasional private loan. A small loan license is required only of a person who makes small loans, meaning loans of 15,000 dollars or less at an APR over 12 percent, as a business (Connecticut General Statutes Sections 36a-555 and 36a-556), regulated by the Department of Banking.
- 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 on a covered loan staying at or below 12 percent per year.
- 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 contract must be filed within six years (Connecticut General Statutes Section 52-576).
Key decisions before you file
Before you file a Loan Agreement in Connecticut, a few decisions shape the document: which option to choose and what each one means. The Loan Agreement guide walks through them.
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Connecticut Requirements for Loan Agreement
Maximum Interest Rate (Usury Cap)
Connecticut caps most private-loan interest at 12 percent per year. Under Connecticut General Statutes Section 37-4, no person shall loan money and charge interest at a rate greater than 12 percent per year. Keep an ordinary private Connecticut loan at or below 12 percent, and state the rate as a number in the written agreement.
Exceptions That Lift the 12 Percent Cap
Statutory exceptions in Connecticut General Statutes Section 37-9 lift the 12 percent cap for bank and credit union loans, real property mortgages over 5,000 dollars, and business or commercial loans over 10,000 dollars. Those loans may carry a higher agreed rate. Confirm whether your loan falls within a listed exception before setting a rate above 12 percent.
Legal Rate When the Contract Is Silent
If a written loan agreement does not state an interest rate, Connecticut sets the legal rate at 8 percent per year (Connecticut General Statutes Section 37-1). To charge more than 8 percent, up to the 12 percent cap on a covered loan, state the agreed rate in the agreement so the 8 percent default does not apply by accident.
Lender Licensing (Small Loan License)
A small loan license from the Department of Banking is required only of a person who makes small loans, meaning loans of 15,000 dollars or less at an APR over 12 percent, as a business (Connecticut General Statutes Sections 36a-555 and 36a-556). An individual making an occasional private loan is not in the business of lending and generally does not need a license. If you lend money repeatedly as a business, confirm whether you must be licensed before you lend.
Put the Loan in Writing
A loan need not be written to be enforceable in Connecticut, but writing it down is strongly advised. State the agreed rate, up to the 12 percent cap on a covered loan, in the written agreement, and remember a written contract carries a six-year period to sue (Connecticut General Statutes Section 52-576). Have both parties sign and date the agreement and keep a copy.
Late Fees Must Stay Within the Cap
Connecticut does not set a flat statutory late-fee cap for a private written loan, but on a covered loan any late fee plus interest should keep the effective rate at or below 12 percent per year (Connecticut General Statutes Section 37-4). 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 agreement must generally be filed within six years in Connecticut, running from the default (Connecticut General Statutes Section 52-576, covering actions on a written contract). 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.