What is a loan agreement in Illinois?

A loan agreement is a written contract in which a lender lends money to a borrower who promises to repay it, usually with interest, on an agreed schedule. In Illinois it should name the parties, the principal, the interest rate as a number, the repayment dates, any late fee, and what counts as default. Because the Interest Act sets a general written-contract rate of 9 percent and fills a blank rate at 5 percent (815 ILCS 205/4 and 205/1), and a consumer loan is capped at 36 percent APR, stating the rate in writing matters. A written contract can be enforced for ten years.

What is the maximum legal interest rate in Illinois?

Under the Interest Act, the general written-contract rate is 9 percent per year for a general loan (815 ILCS 205/4), and the legal rate when nothing is agreed is 5 percent (815 ILCS 205/1). A consumer loan is capped at a 36 percent annual percentage rate under the Predatory Loan Prevention Act (815 ILCS 123). Some loans, such as business or mortgage-secured loans, may contract for a higher agreed rate within that 36 percent outer ceiling.

Is a written loan agreement required in Illinois?

A loan does not have to be in writing to be enforceable in Illinois, but writing it down is strongly advised. To charge more than the 5 percent legal rate, up to the 9 percent general rate or a higher rate on an excepted loan, Illinois requires a written contract stating the rate (815 ILCS 205/4). A written contract also carries a ten-year period to sue under 735 ILCS 5/13-206, so a signed agreement protects both sides.

Do I need a license to lend money in Illinois?

Not for a one-off private loan. The Consumer Installment Loan Act licenses a person who engages in the business of making loans of money and charges more than 9 percent APR (205 ILCS 670/1). An individual who makes an occasional personal loan is not in the business of lending and generally does not need a license. If you lend repeatedly as a business above 9 percent APR, you likely need to be licensed.

What is the penalty for usury in Illinois?

Charging more than the lawful maximum exposes the lender to penalties. A consumer loan that exceeds the 36 percent APR cap under the Predatory Loan Prevention Act is subject to that Act's remedies, and charging above the Interest Act limits can forfeit interest (815 ILCS 205 and 815 ILCS 123). The safest course is to keep a private personal loan within the 9 percent general rate, and in no case above the 36 percent APR consumer ceiling.

What interest applies if my loan agreement is silent in Illinois?

If a loan agreement says nothing about interest, Illinois applies the legal rate of 5 percent per year under 815 ILCS 205/1. To charge more than 5 percent, up to the 9 percent general written-contract rate, you must state the rate in a written agreement signed by the borrower (815 ILCS 205/4), staying within the 36 percent APR consumer ceiling where it applies.

Can I charge a late fee on a loan in Illinois?

Yes, if it keeps the loan within the applicable interest limit. Illinois has no single general late-fee cap for an ordinary private loan, so any late charge, together with interest, should stay within the 9 percent general rate or the 36 percent APR consumer ceiling that applies (815 ILCS 205/4; 815 ILCS 123). Set any late fee as a reasonable charge rather than an amount that pushes the total cost of the loan over the limit.

How long do I have to sue on an unpaid loan in Illinois?

For a written loan agreement, you generally have ten years to sue in Illinois, running from when the cause of action accrues (735 ILCS 5/13-206). Because the written period is long and the signed agreement fixes the terms, keeping a written loan agreement gives you a strong position if you have to collect the debt.

Illinois Loan Agreement

An Illinois loan agreement sets the loan terms. The general written-contract rate is 9 percent, a consumer loan is capped at 36 percent APR, and 5 percent applies if silent.

Find out where you stand in Illinois

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Introduction

Illinois law treats a loan agreement as a written contract to lend money and be repaid with interest, and the parties may contract in writing for up to 9 percent per year on a general loan. In Illinois the interest a private lender may charge is layered. Under the Interest Act, the parties may contract in writing for up to 9 percent per year on a general loan (815 ILCS 205/4), and if the agreement says nothing about interest the legal rate is 5 percent per year (815 ILCS 205/1). Overlaying that, the Predatory Loan Prevention Act caps the rate on a consumer loan at 36 percent APR, calculated as a Military Annual Percentage Rate (815 ILCS 123). Certain loans, such as business loans, loans to corporations, and loans secured by a mortgage, may contract for a higher agreed rate, but a private personal loan should stay within these limits. Making an occasional private loan does not by itself require a license: the Consumer Installment Loan Act licenses a person engaged in the business of making loans above 9 percent APR (205 ILCS 670), which an individual making a one-off loan is not. Once the rate is set, a sound Illinois 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 ten years, and a clear signed agreement protects both sides if the loan is later disputed. DocDraft builds your Illinois loan agreement from your facts, with attorney review available before you sign.

Key Things to Know

1
A loan agreement in Illinois is the signed record of the loan amount, the rate, and the payment dates, and while a general written loan is capped at 9 percent per year a consumer loan may not exceed 36 percent APR.
2
Illinois sets a general written-contract rate. Under the Interest Act, the parties may contract in writing for up to 9 percent per year on a general loan (815 ILCS 205/4). If a loan agreement says nothing about interest, the legal rate is 5 percent per year (815 ILCS 205/1).
3
A consumer loan is capped at 36 percent APR. The Predatory Loan Prevention Act limits the rate on a consumer loan to a 36 percent annual percentage rate, calculated as a Military Annual Percentage Rate (815 ILCS 123). Keep a private personal loan well within that outer ceiling.
4
You do not need a license to make an occasional private loan. The Consumer Installment Loan Act licenses a person engaged in the business of making loans of money above 9 percent APR (205 ILCS 670). An individual making a single, occasional loan is not in that business and generally does not need a license.
5
Some loans may contract for a higher rate. The Interest Act lets business loans, loans to corporations, and loans secured by a mortgage on real estate set an agreed rate above 9 percent (815 ILCS 205/4), but such a loan still cannot exceed the 36 percent APR consumer ceiling where it applies.
6
Put the loan in writing and keep it. A lawsuit on a written contract must be filed within ten years in Illinois (735 ILCS 5/13-206). A written, signed agreement is far easier to enforce than an oral one and is required to fix a rate above the 5 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 applicable interest limit so the total cost of the loan stays lawful.

Key decisions before you file

Before you file a Loan Agreement in Illinois, 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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ILLINOIS LOAN AGREEMENT (Written loan of money with interest and repayment terms; Illinois law)

PARTIES. This Loan Agreement is made on [DATE] between [LENDER NAME], of [ADDRESS] (Lender), and [BORROWER NAME], of [ADDRESS] (Borrower).
LOAN AMOUNT (PRINCIPAL). Lender agrees to lend, and Borrower agrees to repay, the principal sum of [AMOUNT IN WORDS] dollars ([AMOUNT]).
INTEREST. The unpaid principal bears interest at [NUMBER] percent per year. Under the Illinois Interest Act, the parties may contract in writing for up to 9 percent per year on a general loan (815 ILCS 205/4), and a consumer loan may not exceed a 36 percent annual percentage rate under the Predatory Loan Prevention Act (815 ILCS 123). If this agreement is left blank as to rate, Illinois applies the legal rate of 5 percent per year (815 ILCS 205/1).
REPAYMENT. Borrower shall repay the loan by [ ] a single payment of [AMOUNT] due on [DATE]; or [ ] [NUMBER] equal installments of [AMOUNT] each, due on the [DAY] of each month starting [DATE] until paid in full. Payments apply first to accrued interest, then to principal.
PREPAYMENT. Borrower may prepay all or part of the principal at any time without penalty, and interest stops accruing on any amount prepaid.
LATE FEE. If a payment is more than [NUMBER] days late, Borrower shall pay a late charge of [AMOUNT], which the parties agree is a reasonable estimate of Lender costs from the late payment and stays within the applicable interest limit.
DEFAULT. Borrower is in default if a payment is more than [NUMBER] days late, if Borrower breaks any promise in this agreement, or if Borrower becomes insolvent or files for bankruptcy.
ACCELERATION. On default, Lender may declare the entire unpaid balance of principal and accrued interest immediately due and payable, after any notice and cure period stated here: [NOTICE TERMS].
COLLECTION COSTS. If the loan is placed for collection, Borrower shall pay Lender reasonable collection costs and attorney fees to the extent permitted by law.
SECURITY. This loan is [ ] unsecured; or [ ] secured by the following collateral: [DESCRIBE]. Any collateral is governed by a separate security agreement.
GOVERNING LAW. This agreement is governed by the laws of the State of Illinois.
ENTIRE AGREEMENT. This writing is the entire agreement between the parties and may be changed only in a writing signed by both.

Executed on [DATE].

[LENDER NAME], Lender

[BORROWER NAME], Borrower

Note: This is a plain Illinois loan-agreement skeleton for a private written loan. An individual making an occasional loan is generally not required to hold a license; a person engaged in the business of making loans above 9 percent APR needs a license under the Consumer Installment Loan Act (205 ILCS 670). Keep the rate within the 9 percent general written-contract rate, and in no case above the 36 percent APR consumer ceiling (815 ILCS 205/4; 815 ILCS 123), and keep the signed agreement, because a lawsuit on a written contract must be filed within ten years (735 ILCS 5/13-206). For the complete builder and other states, see the full Loan Agreement template hub.

Illinois Requirements for Loan Agreement

Maximum Interest Rate (Usury Cap)
Illinois sets a general written-contract rate under the Interest Act: the parties may contract in writing for up to 9 percent per year on a general loan (815 ILCS 205/4). Overlaying that, a consumer loan may not exceed a 36 percent annual percentage rate under the Predatory Loan Prevention Act (815 ILCS 123). State the rate as a number and keep a private personal loan within the 9 percent rate and always under the 36 percent APR consumer ceiling.
Legal Rate When the Contract Is Silent
If a loan agreement says nothing about interest, Illinois applies the legal rate of 5 percent per year (815 ILCS 205/1). To charge more than 5 percent, up to the 9 percent general written-contract rate, the parties must contract in writing for the rate (815 ILCS 205/4). Always write the agreed rate into the agreement so the 5 percent default does not apply by accident.
Consumer Loan Cap (Predatory Loan Prevention Act)
The Predatory Loan Prevention Act caps the rate on a consumer loan at a 36 percent annual percentage rate, calculated as a Military Annual Percentage Rate (815 ILCS 123/15-5-5). This is the outer ceiling for a private personal loan. Keep any consumer loan well within that limit; a rate above 36 percent APR is subject to the Act's remedies.
Lender Licensing (Consumer Installment Loan Act)
The Consumer Installment Loan Act licenses a person who engages in the business of making loans of money and charges more than 9 percent APR (205 ILCS 670/1). 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 above 9 percent APR, confirm whether you must be licensed before you lend.
Late Fees Within the Interest Limit
Illinois has no single general statutory late-fee cap for an ordinary private loan, so any late charge, together with interest, should stay within the 9 percent general rate or the 36 percent APR consumer ceiling that applies (815 ILCS 205/4; 815 ILCS 123). Set any late fee as a reasonable estimate of the lender actual costs rather than an amount that pushes the total cost of the loan over the limit.
Put the Loan in Writing
A loan need not be written to be enforceable in Illinois, but writing it down is strongly advised. A written contract is required to charge interest above the 5 percent legal rate (815 ILCS 205/4), and it carries a ten-year period to sue (735 ILCS 5/13-206). 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 ten years in Illinois, running from when the cause of action accrues (735 ILCS 5/13-206). Keeping a signed written agreement gives you this long period and fixes the terms if you have to collect the debt.

Find out where you stand in Illinois

Introduction

Key Things to Know

Key decisions before you file

Customize your Loan Agreement Template with DocDraft

Illinois Requirements for Loan Agreement

Maximum Interest Rate (Usury Cap)

Legal Rate When the Contract Is Silent

Consumer Loan Cap (Predatory Loan Prevention Act)

Lender Licensing (Consumer Installment Loan Act)

Late Fees Within the Interest Limit

Put the Loan in Writing

Default and Acceleration

Time Limit to Sue on the Debt

Frequently Asked Questions