Iowa Loan Agreement
An Iowa loan agreement sets the loan terms. The rate is 5 percent if left blank, or up to the maximum lawful rate the state publishes each month by written agreement.
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Introduction
Under Iowa law, a loan agreement is a written contract to lend money and be repaid with interest, and by putting the rate in writing the parties may charge up to the maximum lawful rate Iowa publishes each month. In Iowa the interest a private lender may charge depends on whether the rate is put in writing. Under Iowa Code Section 535.2, if a loan agreement does not provide a rate in writing, the rate is 5 percent per year. By written agreement the parties may charge up to the maximum lawful rate of interest, which is 2 percentage points above the monthly average ten-year Treasury rate and which the superintendent of banking publishes each month. Loans for business, agricultural, or personal purposes that exceed a threshold amount defined in Section 537.1301, a figure adjusted each year, are exempt from the rate cap. Making an occasional private loan does not by itself require a license: the Iowa Regulated Loan Act licenses a person who engages in the business of making loans (Section 536.1), which an individual making a one-off loan is not. Once the rate is set, a sound Iowa 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 Iowa loan agreement from your facts, with attorney review available before you sign.
Key Things to Know
- 1
An Iowa loan agreement is the signed record of the amount, the rate, and the due dates, and if it leaves the rate blank Iowa fills the gap at 5 percent per year rather than the higher written maximum.
- 2
Iowa sets a low default rate but allows a higher agreed rate in writing. If a loan agreement does not provide a rate in writing, the rate is 5 percent per year (Iowa Code Section 535.2). By written agreement the parties may charge up to the maximum lawful rate the state publishes each month.
- 3
Iowa's maximum lawful contract rate floats. It is set at 2 percentage points above the monthly average ten-year Treasury rate, rounded to the nearest one-fourth of one percent, and the superintendent of banking publishes it each month (Iowa Code Section 535.2). Check the current published rate before you set a rate above 5 percent.
- 4
You do not need a license to make an occasional private loan. The Iowa Regulated Loan Act licenses a person who engages in the business of making loans (Iowa Code Section 536.1). An individual making a single, occasional loan is not in the business of lending and generally does not need a license.
- 5
Large loans can be exempt from the cap. A loan for business, agricultural, or personal purposes that exceeds a threshold amount defined in Iowa Code Section 537.1301, a figure adjusted each year, may charge any rate the parties agree to in writing (Section 535.2).
- 6
Put the loan in writing and keep it. A lawsuit on a written contract must be filed within ten years in Iowa (Iowa Code Section 614.1); an oral contract carries only five years. A written, signed agreement is far easier to enforce and is required to charge above 5 percent.
- 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 maximum lawful rate so the total cost of the loan stays lawful.
Key decisions before you file
Before you file a Loan Agreement in Iowa, 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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Iowa Requirements for Loan Agreement
Maximum Interest Rate (Usury Cap)
Iowa sets a low default rate but allows a higher agreed rate in writing. If a loan agreement does not provide a rate in writing, the rate is 5 percent per year; by written agreement the parties may charge up to the maximum lawful rate the superintendent of banking publishes each month (Iowa Code Section 535.2). State the rate as a number and confirm the current maximum lawful rate before setting a rate above 5 percent.
How the Maximum Lawful Rate Is Set
Iowa's maximum lawful contract rate floats. It is set at 2 percentage points above the monthly average ten-year constant maturity Treasury rate, rounded to the nearest one-fourth of one percent, and the superintendent of banking publishes it each month (Iowa Code Section 535.2(3)(a)). Because it changes monthly, check the current published rate at the time you make the loan.
Legal Rate When the Contract Is Silent
If a loan agreement does not provide an interest rate in writing, Iowa applies the default rate of 5 percent per year (Iowa Code Section 535.2). To charge a higher rate, up to the monthly maximum lawful rate, the parties must provide for the rate in a written agreement. Always write the agreed rate into the agreement so the 5 percent default does not apply by accident.
Lender Licensing (Regulated Loan Act)
The Iowa Regulated Loan Act licenses a person who engages in the business of making loans (Iowa Code Section 536.1). 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, confirm whether you must be licensed before you lend.
Large Loans Over the Threshold
A loan for business, agricultural, or personal purposes that exceeds a threshold amount defined in Iowa Code Section 537.1301, a figure adjusted each year, may charge any rate the parties agree to in writing and is exempt from the rate cap (Iowa Code Section 535.2). Smaller private loans stay within the maximum lawful rate published for the month.
Put the Loan in Writing
A loan need not be written to be enforceable in Iowa, but writing it down is strongly advised. A written agreement is required to charge more than the 5 percent default rate (Iowa Code Section 535.2), and it carries a ten-year period to sue instead of the five years for an oral contract (Section 614.1). 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 ten years in Iowa (Iowa Code Section 614.1); an oral contract carries only five years. Keeping a signed written agreement gives you the longer, easier-to-prove period and fixes the terms if you have to collect the debt.