Louisiana Loan Agreement

Introduction

Key Things to Know

1. 1

   A loan agreement in Louisiana records the amount lent, the rate, and the payment schedule, and the conventional interest a private lender may charge is capped at 12 percent per year when it is fixed in writing.

2. 2

   Louisiana caps conventional interest on a private loan. Under Revised Statutes 9:3500 the amount of conventional interest cannot exceed 12 percent per year, and the rate must be fixed in writing. The cap does not apply to a commercial or business loan, to consumer credit under the Louisiana Consumer Credit Law, or to banking institutions.

3. 3

   If a loan does not set a rate, the debt carries legal interest rather than conventional interest. Louisiana law divides interest into legal and conventional (Civil Code Article 2924), and the legal or judicial rate is set each year by the Commissioner of Financial Institutions (Revised Statutes 13:4202). To fix a higher rate up to 12 percent, state it in writing.

4. 4

   You do not need a license to make an occasional private loan. A license is required only of a person who engages in the business of making consumer loans under the Louisiana Consumer Credit Law (Revised Statutes 9:3557), administered by the Office of Financial Institutions. A one-off personal loan is not the business of lending.

5. 5

   Louisiana sets no separate flat late-fee cap for a private loan made outside the Consumer Credit Law. Set any late charge as a reasonable estimate of the lender actual costs from a late payment, and keep the overall conventional interest within the 12 percent per year maximum.

6. 6

   Put the loan in writing and keep it. Conventional interest must be fixed in writing to be enforced, and a personal action on the debt is subject to a ten-year liberative prescription (Civil Code Article 3499). A written, signed agreement is far easier to enforce.

7. 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.

Louisiana Requirements for Loan Agreement

• Maximum Interest Rate (Conventional Cap)

  Louisiana caps conventional interest on a private loan. Under Revised Statutes 9:3500 the amount of conventional interest cannot exceed 12 percent per year, and the rate must be fixed in writing. State the rate as a number and keep a private personal loan at or below 12 percent, unless the loan is a commercial, business, or licensed-consumer transaction that is exempt from the cap.

• Legal Rate When the Contract Is Silent

  If a loan does not fix a rate in writing, the debt carries legal interest rather than conventional interest. Louisiana divides interest into legal and conventional (Civil Code Article 2924), and the legal or judicial rate is set each year by the Commissioner of Financial Institutions (Revised Statutes 13:4202). To charge a higher rate up to the 12 percent conventional maximum, fix the rate in writing in the agreement.

• Lender Licensing (Consumer Credit Law)

  A license under the Louisiana Consumer Credit Law, administered by the Office of Financial Institutions, is required only of a person who engages in the business of making consumer loans (Revised Statutes 9:3557). 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.

• Exempt Loans Are Not Bound by the 12 Percent Cap

  The 12 percent conventional cap governs an ordinary private loan, not every transaction. Louisiana excludes from the cap a loan for a commercial or business purpose, consumer credit governed by the Louisiana Consumer Credit Law, and loans by banking institutions (Revised Statutes 9:3500). This is why a business borrower or a licensed consumer lender may carry a rate above 12 percent while an ordinary private loan may not.

• Late Fees on a Private Loan

  Louisiana sets no separate flat statutory late-fee cap for a private loan made outside the Consumer Credit Law. Set any late charge as a reasonable estimate of the lender actual costs from a late payment, not an arbitrary penalty, and keep the overall conventional interest within the 12 percent per year maximum (Revised Statutes 9:3500). State the late fee and any grace period clearly in the agreement.

• Put the Loan in Writing

  Conventional interest must be fixed in writing to be enforced, and testimonial proof of the rate is not admitted (Revised Statutes 9:3500), so a written agreement is essential to charge interest in Louisiana. A written, signed contract also preserves a clear record for the ten-year prescription period (Civil Code Article 3499). 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 personal action to collect on a loan is subject to a ten-year liberative prescription in Louisiana, so you generally have ten years to sue (Civil Code Article 3499). The period runs from when the debt becomes due or is last acknowledged. Keeping a signed written agreement and a record of payments gives you a clear, provable claim within that period.