Delaware Loan Agreement

Introduction

Key Things to Know

1. 1

   In Delaware a loan agreement sets down in writing the lender's money, the borrower's promise to repay, the amount, the rate, and the due dates; a loan of more than 100,000 dollars that is not secured by the borrower's principal residence carries no rate limit at all.

2. 2

   Delaware ties the rate ceiling to the Federal Reserve discount rate. Under Delaware Code Title 6, Section 2301, a lender may contract in writing for interest not exceeding 5 percent over the Federal Reserve discount rate. Because the ceiling moves with the benchmark, check the current discount rate before you set a number.

3. 3

   A loan over 100,000 dollars can have no rate limit. Delaware Code Title 6, Section 2301 removes any interest limit on a loan exceeding 100,000 dollars that is not secured by a mortgage on any borrower's principal residence. This carve-out is the key Delaware rule for larger unsecured loans.

4. 4

   If a written loan agreement does not state a rate, Delaware sets the legal rate at 5 percent over the Federal Reserve discount rate (Delaware Code Title 6, Section 2301). Always write the agreed rate into the agreement so this default does not apply by accident.

5. 5

   You do not need a license to make an occasional private loan. A licensed-lender license is required only of a person who transacts the business of lending money in Delaware (Delaware Code Title 5, Section 2202), overseen by the Office of the State Bank Commissioner.

6. 6

   Put the loan in writing and keep a late fee reasonable. A written, signed agreement is far easier to enforce, and any late charge should be a reasonable estimate of the lender's actual costs from a late payment rather than an arbitrary penalty.

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 contract must be filed within three years (Delaware Code Title 10, Section 8106).

Delaware Requirements for Loan Agreement

• Maximum Interest Rate (Tied to the Discount Rate)

  Delaware ties the rate ceiling to a Federal Reserve benchmark. Under Delaware Code Title 6 Section 2301, a lender may contract in writing for interest not exceeding 5 percent over the Federal Reserve discount rate on a loan of 100,000 dollars or less. Because the ceiling moves with the benchmark, check the current discount rate before you set a number, and state the rate as a number in the agreement.

• Loans Over 100,000 Dollars Have No Rate Limit

  Delaware Code Title 6 Section 2301 removes any interest limit on a loan exceeding 100,000 dollars that is not secured by a mortgage on any borrower principal residence. This carve-out is the key Delaware rule for larger unsecured loans: below the threshold the discount-rate ceiling applies, and above it the parties may set the rate freely in writing.

• Legal Rate When the Contract Is Silent

  If a written loan agreement does not state an interest rate, Delaware sets the legal rate at 5 percent over the Federal Reserve discount rate (Delaware Code Title 6 Section 2301). Always write the agreed rate into the agreement so this default does not apply by accident, and keep a covered loan at or below the same discount-rate ceiling.

• Lender Licensing (Licensed Lender)

  A licensed-lender license from the Office of the State Bank Commissioner is required only of a person who transacts the business of lending money in Delaware (Delaware Code Title 5 Section 2202). An individual making an occasional private loan is not transacting 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 Delaware, but writing it down is strongly advised. An agreed rate up to 5 percent over the Federal Reserve discount rate must be set in a writing (Delaware Code Title 6 Section 2301), and a written contract carries a three-year period to sue (Delaware Code Title 10 Section 8106). Have both parties sign and date the agreement and keep a copy.

• Late Fees Must Be Reasonable

  Delaware does not set a flat statutory late-fee cap for a private written loan under the general interest statute. A late charge is enforceable as a reasonable estimate of the lender's actual costs from a late payment, not as a penalty. Set any late fee in a Delaware loan agreement as a reasonable amount tied to your real costs, and on a covered loan keep total charges within the discount-rate ceiling.

• 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 loan agreement must generally be filed within three years in Delaware, running from the default (Delaware Code Title 10 Section 8106, covering actions based on a promise or contract). Because that period is relatively short, keep a signed written agreement and act promptly. Confirm the current deadline before filing, since it can turn on when the last payment or written acknowledgment was made.