Hawaii Loan Agreement
A Hawaii loan agreement sets the loan terms and caps a private consumer loan at 12 percent per year, with 10 percent applying if the rate is left blank.
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Introduction
A Hawaii loan agreement is a written contract to lend money and have it repaid with interest on a set schedule, and in Hawaii the interest on a private consumer loan generally cannot exceed 12 percent per year. In Hawaii the interest a private lender may charge is capped. Under Hawaii Revised Statutes Section 478-4, a consumer credit transaction may charge simple interest of no more than one percent per month, or 12 percent per year, by written contract; a regulated bank under chapter 412 may charge up to 24 percent, but that higher ceiling is not available to a private lender. If a written agreement does not fix a rate, Hawaii applies the legal rate of 10 percent per year under Section 478-2. Making an occasional private loan does not by itself require a license: the financial services loan company license applies to a corporation in the business of making loans at rates above those otherwise permitted by law (Section 412:9-100 and Section 412:9-101), which an individual making a one-off loan is not. Once the rate is set, a sound Hawaii 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, and a clear signed agreement protects both sides if the loan is later disputed. DocDraft builds your Hawaii loan agreement from your facts, with attorney review available before you sign.
Key Things to Know
- 1
In Hawaii, a loan agreement is the signed record of who lends, who repays, the interest rate, and the due dates, and it lets a private lender charge up to 12 percent per year on a consumer loan when the rate is written down.
- 2
Hawaii caps interest on a private consumer loan. Under Hawaii Revised Statutes Section 478-4, a consumer credit transaction may charge simple interest of no more than one percent per month, or 12 percent per year, by written contract. A regulated bank under chapter 412 may charge up to 24 percent per year, but a private lender is bound by the 12 percent ceiling.
- 3
If a written loan agreement does not fix an interest rate, Hawaii applies the legal rate of 10 percent per year (Hawaii Revised Statutes Section 478-2). To charge more than 10 percent, up to the 12 percent consumer cap, you need a written contract that states the rate.
- 4
You do not need a license to make an occasional private loan. Hawaii's financial services loan company license applies to a corporation in the business of making loans at rates above those otherwise permitted by law (Section 412:9-100 and Section 412:9-101). An individual making a single, occasional loan is not that corporation.
- 5
Banks and licensed lenders sit outside the 12 percent consumer cap. Regulated chapter 412 financial institutions may charge up to 24 percent per year, and credit card agreements and certain other transactions are governed by separate law, which is why a licensed lender can lawfully charge more than a private lender.
- 6
Put the loan in writing and keep it. A lawsuit on a written contract debt must be filed within six years in Hawaii (Section 657-1). A written, signed agreement is far easier to enforce than an oral one and is required to fix a rate above the 10 percent legal rate.
- 7
Spell out default, acceleration, and any late fee. Define what counts as default, include an acceleration clause so the lender can demand the entire unpaid balance at once, and keep any late fee within the 12 percent per year ceiling so the total cost of the loan stays lawful.
Key decisions before you file
Before you file a Loan Agreement in Hawaii, 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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Hawaii Requirements for Loan Agreement
Maximum Interest Rate (Usury Cap)
Hawaii caps interest on a private consumer loan. Under Hawaii Revised Statutes Section 478-4, a consumer credit transaction may charge simple interest of no more than one percent per month, or 12 percent per year, by written contract. A regulated bank under chapter 412 may charge up to 24 percent, but a private lender is bound by the 12 percent ceiling. State the rate as a number and keep a private loan at or below 12 percent per year.
Legal Rate When the Contract Is Silent
If a written loan agreement does not fix an interest rate, Hawaii applies the legal rate of 10 percent per year (Hawaii Revised Statutes Section 478-2). To charge more than 10 percent, up to the 12 percent consumer cap, the parties must contract in writing for the higher rate. Always write the agreed rate into the agreement so the 10 percent default does not apply by accident.
Lender Licensing (Financial Services Loan Company)
Hawaii's financial services loan company license, under chapter 412 article 9, applies to a corporation engaged in the business of making loans at rates above those otherwise permitted by law (Hawaii Revised Statutes Section 412:9-100 and Section 412:9-101). An individual making an occasional private loan at or below the 12 percent cap is not that corporation and generally does not need a license. If you lend repeatedly as a business, confirm whether you must be licensed.
Exempt and Regulated Lenders
The 12 percent consumer ceiling binds private lenders, not exempt classes. A regulated chapter 412 financial institution may charge up to 24 percent per year, and credit card agreements and certain other transactions are governed by separate law (Hawaii Revised Statutes Section 478-4). This is why a licensed lender can lawfully charge more than a private individual can on the same loan.
Late Fees Within the Interest Ceiling
Hawaii has no separate general statutory late-fee cap for an ordinary private loan, so any late charge, together with interest, should stay within the 12 percent per year ceiling on a consumer credit transaction (Hawaii Revised Statutes Section 478-4). Set any late fee as a reasonable charge rather than an amount that pushes the total cost of the loan over the ceiling.
Put the Loan in Writing
A loan need not be written to be enforceable in Hawaii, but writing it down is strongly advised. An express written contract is required to fix a rate above the 10 percent legal rate (Hawaii Revised Statutes Section 478-4), and a written contract debt carries a six-year period to sue (Section 657-1). Have both parties sign and date the agreement and keep a copy.
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 Hawaii, running from when the cause of action accrues (Hawaii Revised Statutes Section 657-1). Keeping a signed written agreement gives you this period and fixes the terms if you have to collect the debt.