Kentucky Loan Agreement
A Kentucky loan agreement sets the loan terms and caps a smaller private loan near 19 percent, with 8 percent applying if the rate is left blank.
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Introduction
In Kentucky, a loan agreement is a written contract to lend money and be repaid with interest, and on a loan of 15,000 dollars or less the rate is capped near 19 percent per year. In Kentucky the interest you can charge is limited, and the limit turns on the size of the loan. Under Kentucky Revised Statutes 360.010 the legal rate is 8 percent per year, but the parties may agree in writing to more. On a loan of 15,000 dollars or less the ceiling is the lesser of 19 percent per year or 4 percent over the Federal Reserve discount rate on 90-day commercial paper; on a loan over 15,000 dollars the parties may agree in writing to any rate. If a loan does not set a rate in writing, the 8 percent legal rate applies, and charging above the ceiling on a smaller loan is usurious. Making an occasional private loan does not by itself require a license: a Consumer Loan Company license is needed only by a person engaged in the business of making loans of 15,000 dollars or less at a rate above the legal ceiling (Section 286.4-420), so a one-off personal loan is not licensed. Once the rate is set, a sound Kentucky 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 written agreement is required to charge more than 8 percent, and a lawsuit on a written contract signed today must be filed within ten years (Section 413.160). DocDraft builds your Kentucky loan agreement from your facts, with attorney review available before you sign.
Key Things to Know
- 1
A Kentucky loan agreement is the signed record of the amount, the rate, and the repayment dates, and its interest ceiling turns on loan size, reaching about 19 percent per year on a loan of 15,000 dollars or less.
- 2
Kentucky limits interest, and the limit turns on loan size. The legal rate is 8 percent per year, but the parties may agree in writing to more: on a loan of 15,000 dollars or less the ceiling is the lesser of 19 percent per year or 4 percent over the Federal Reserve discount rate on 90-day commercial paper; on a loan over 15,000 dollars any agreed written rate is lawful (Kentucky Revised Statutes 360.010).
- 3
If a loan does not state a rate in writing, Kentucky applies the 8 percent legal rate, and that rate also governs interest after default when no rate is stated (Kentucky Revised Statutes 360.010). To charge more than 8 percent you need a written agreement.
- 4
You do not need a license to make an occasional private loan. A Consumer Loan Company license is required only of a person engaged in the business of making loans of 15,000 dollars or less at a rate above the legal ceiling (Kentucky Revised Statutes 286.4-420), overseen by the Department of Financial Institutions. Banks, credit unions, and licensed pawnbrokers are separately excluded.
- 5
Kentucky sets no separate flat late-fee cap for a private loan. Interest after default runs at the rate stated in the contract, or at the 8 percent legal rate if none is stated (Kentucky Revised Statutes 360.010). Set any late charge as a reasonable estimate of the lender actual costs.
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Put the loan in writing and keep it. A written agreement is required to charge more than the 8 percent legal rate, and a lawsuit on a written contract executed today must be filed within ten years (Kentucky Revised Statutes 413.160). A signed agreement is far easier to enforce.
- 7
Spell out default and acceleration. Define what counts as default, usually a missed payment past a stated grace period, and include an acceleration clause so the lender can demand the entire unpaid balance at once if the borrower defaults.
Key decisions before you file
Before you file a Loan Agreement in Kentucky, 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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Kentucky Requirements for Loan Agreement
Kentucky limits interest, and the limit turns on loan size. The legal rate is 8 percent per year, but the parties may agree in writing to more: on a loan of 15,000 dollars or less the ceiling is the lesser of 19 percent per year or 4 percent over the Federal Reserve discount rate on 90-day commercial paper; on a loan over 15,000 dollars any agreed written rate is lawful (Kentucky Revised Statutes 360.010). State the rate as a number and keep a smaller loan within the ceiling.
If a loan does not state a rate in writing, Kentucky applies the 8 percent legal rate (Kentucky Revised Statutes 360.010), and that rate also governs interest after default when no rate is stated. To charge more than 8 percent, up to the applicable ceiling, the parties must agree in writing. Always write the agreed rate into the agreement so the 8 percent default does not apply by accident.
A Consumer Loan Company license, administered by the Kentucky Department of Financial Institutions, is required only of a person engaged in the business of making loans of 15,000 dollars or less at a rate above the legal ceiling (Kentucky Revised Statutes 286.4-420). An individual making an occasional private loan is not in that business and generally does not need a license. If you lend money repeatedly as a business, confirm whether you must be licensed before you lend.
The 19 percent ceiling governs a smaller written loan, not every loan. On a loan whose original principal exceeds 15,000 dollars the parties may agree in writing to any rate (Kentucky Revised Statutes 360.010), and banks, savings banks, trust companies, credit unions, and licensed pawnbrokers are excluded from the consumer-loan subtitle (Section 286.4-410). This is why a larger or institutional loan can carry a rate above 19 percent while an ordinary smaller private loan cannot.
Kentucky sets no separate flat statutory late-fee cap for a private loan. Interest after default runs at the rate stated in the contract, or at the 8 percent legal rate if none is stated (Kentucky Revised Statutes 360.010), and the statutory default-charge limits apply only to licensed consumer loan companies. Set any late fee as a reasonable estimate of the lender actual costs, not an arbitrary penalty.
A loan need not be written to be enforceable in Kentucky, but writing it down is strongly advised. A written agreement is required to charge interest above the 8 percent legal rate (Kentucky Revised Statutes 360.010), and a written contract executed today carries a ten-year period to sue (Section 413.160). Have both parties sign and date the agreement and keep a copy.
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.
A lawsuit to collect on a written loan agreement executed today must generally be filed within ten years in Kentucky, running from the default (Kentucky Revised Statutes 413.160). Written contracts executed on or before July 15, 2014 carry the older fifteen-year period (Section 413.090). Keeping a signed written agreement and a record of payments gives you a clear, provable claim within that period.
Frequently Asked Questions
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 Kentucky 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 Kentucky sets an 8 percent legal rate and caps a smaller written loan near 19 percent (Kentucky Revised Statutes 360.010), stating the rate in writing matters. A written contract signed today can also be enforced for ten years.
It depends on the loan size. The legal rate is 8 percent per year, but the parties may agree in writing to more: on a loan of 15,000 dollars or less the ceiling is the lesser of 19 percent per year or 4 percent over the Federal Reserve discount rate on 90-day commercial paper; on a loan over 15,000 dollars the parties may agree in writing to any rate (Kentucky Revised Statutes 360.010). So for a typical smaller private loan the practical maximum is 19 percent per year.
A loan does not have to be in writing to be enforceable in Kentucky, but writing it down is strongly advised. To charge interest above the 8 percent legal rate, Kentucky requires the parties to agree in writing (Kentucky Revised Statutes 360.010). A written contract also carries a ten-year period to sue for agreements executed after July 15, 2014 (Section 413.160), so a signed Kentucky agreement protects both sides if the loan is later disputed.
Not for a one-off private loan. A Consumer Loan Company license, issued by the Kentucky Department of Financial Institutions, is required only of a person engaged in the business of making loans of 15,000 dollars or less at a rate above the legal ceiling (Kentucky Revised Statutes 286.4-420). An individual who makes an occasional personal loan is not in that business and generally does not need a license. Banks, credit unions, and licensed pawnbrokers are separately excluded.
Charging more than the lawful maximum on a smaller loan makes the interest usurious. Under Kentucky Revised Statutes 360.020 a lender who charges more than the maximum permitted by Section 360.010 forfeits the excess interest and may face a civil penalty, and payments are applied first to interest. The safest course is to keep a written loan of 15,000 dollars or less at or below the lesser of 19 percent or 4 percent over the Federal Reserve discount rate.
If a loan does not state a rate in writing, Kentucky applies the 8 percent legal rate under Kentucky Revised Statutes 360.010. That 8 percent rate also governs interest after default when the contract states no rate. To charge a higher rate, up to the applicable ceiling, you must state the rate in a written agreement, so always write the agreed rate into the Kentucky agreement.
Yes, if it is reasonable. Kentucky sets no separate flat late-fee cap for a private loan. Interest after default runs at the rate stated in the contract, or at the 8 percent legal rate if none is stated (Kentucky Revised Statutes 360.010), and the statutory late-charge limits apply only to licensed consumer loan companies. Tie any late fee to your real costs from a late payment and state it clearly in the Kentucky agreement.
For a written loan agreement executed today you generally have ten years from the default to sue in Kentucky (Kentucky Revised Statutes 413.160). Written contracts executed on or before July 15, 2014 carry the older fifteen-year period (Section 413.090). Because the clock runs from the missed payment, keeping a signed written agreement and a record of payments gives you the stronger position if you have to collect in Kentucky.