Maryland Loan Agreement
A Maryland loan agreement sets the loan terms and caps a private loan at 8 percent per year in writing, with 6 percent applying if the rate is left blank.
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Introduction
Under Maryland law, a loan agreement is a written contract to lend money and be repaid with interest, and a private loan is capped at 8 percent per year when the rate is set in a signed writing. In Maryland the interest you can charge is capped. Under the Commercial Law Article the general maximum is 6 percent per year on the unpaid principal balance, but a lender may charge up to 8 percent per year if there is a written agreement signed by the borrower that states the rate (Sections 12-102 and 12-103). Higher rates are allowed only for specific loan types, such as loans to a corporation or larger commercial loans. If a loan does not state a rate in a signed writing, the 6 percent legal rate applies. That cap binds ordinary private lenders, but licensed lenders under the Maryland Consumer Loan Law can charge more on the small consumer loans that law governs. Making an occasional private loan does not by itself require a license: a Consumer Loan Law license is needed only by a person engaged in the business of making loans of 25,000 dollars or less for personal, family, or household purposes (Section 12-302), so a one-off personal loan within the caps is not licensed. Once the rate is set, a sound Maryland 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 signed by the borrower is required to charge the 8 percent rate, and a lawsuit on a written contract must generally be filed within three years (Courts and Judicial Proceedings Section 5-101). DocDraft builds your Maryland loan agreement from your facts, with attorney review available before you sign.
Key Things to Know
- 1
A Maryland loan agreement records the amount, the rate, and the repayment dates, and while the general legal rate is 6 percent a lender may charge up to 8 percent per year under a signed written agreement.
- 2
Maryland caps interest on a private loan. The general maximum is 6 percent per year on the unpaid principal balance (Commercial Law Section 12-102), but a lender may charge up to 8 percent per year if there is a written agreement signed by the borrower that states the rate (Section 12-103). Higher rates apply only to specific loan types such as corporate or larger commercial loans.
- 3
If a loan does not state a rate in a written agreement signed by the borrower, Maryland applies the 6 percent legal rate (Commercial Law Section 12-102). To charge 8 percent you need the borrower signed writing that sets the rate.
- 4
You do not need a license to make an occasional private loan. A Maryland Consumer Loan Law license is required only of a person engaged in the business of making loans of 25,000 dollars or less for personal, family, or household purposes (Commercial Law Sections 12-302 and 12-303), overseen by the Office of the Commissioner of Financial Regulation.
- 5
Maryland sets no separate flat late-fee cap for a private loan made outside the Consumer Loan Law. Treat a late charge as liquidated damages and set it as a reasonable estimate of the lender actual costs from a late payment rather than an arbitrary penalty.
- 6
Put the loan in writing and keep it. A written agreement signed by the borrower is required to charge 8 percent, and a lawsuit on a written contract must generally be filed within three years (Courts and Judicial Proceedings Section 5-101), or twelve years if the instrument is under seal (Section 5-102).
- 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 Maryland, 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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Maryland Requirements for Loan Agreement
Maximum Interest Rate (Usury Cap)
Maryland caps interest on a private loan. The general maximum is 6 percent per year on the unpaid principal balance (Commercial Law Section 12-102), but a lender may charge up to 8 percent per year if there is a written agreement signed by the borrower that states the rate (Section 12-103). Keep an ordinary private loan at or below these rates and state the rate as a number.
Legal Rate When the Contract Is Silent
If a loan does not state a rate in a written agreement signed by the borrower, Maryland applies the 6 percent legal rate (Commercial Law Section 12-102). To charge the higher 8 percent rate, the borrower must sign a writing that sets the rate (Section 12-103). Always write the agreed rate into the agreement so the 6 percent default does not apply by accident.
Lender Licensing (Consumer Loan Law)
A Maryland Consumer Loan Law license, administered by the Office of the Commissioner of Financial Regulation, is required only of a person engaged in the business of making loans of 25,000 dollars or less for personal, family, or household purposes (Commercial Law Sections 12-302 and 12-303). An individual making an occasional private loan within the caps is not in the business of lending and generally does not need a license.
Higher Rates Only for Specific Loan Types
The 6 and 8 percent caps govern an ordinary private loan, not every transaction. Maryland allows higher rates for specified loan types under Commercial Law Section 12-103, including loans to a corporation, larger commercial loans, qualifying first-mortgage residential loans, and federally insured or guaranteed loans. This is why a corporate or commercial borrower, or a licensed consumer lender, may carry a rate above 8 percent while an ordinary private loan may not.
Late Fees as Liquidated Damages
Maryland sets no separate flat statutory late-fee cap for a private loan made outside the Consumer Loan Law. Treat a late charge as liquidated damages and set it as a reasonable estimate of the lender actual costs from a late payment, not an arbitrary penalty. State the late fee and any grace period clearly in the agreement.
Put the Loan in Writing
A loan need not be written to be enforceable in Maryland, but writing it down is strongly advised. A written agreement signed by the borrower is required to charge the 8 percent rate rather than the general 6 percent (Commercial Law Section 12-103), and a written contract carries a three-year period to sue, or twelve years if under seal (Courts and Judicial Proceedings Sections 5-101 and 5-102). 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 an ordinary written loan agreement must generally be filed within three years in Maryland, running from the default (Courts and Judicial Proceedings Section 5-101). If the instrument is executed under seal, the period is twelve years (Section 5-102). Keeping a signed written agreement and a record of payments gives you a clear, provable claim within that period.