Massachusetts Loan Agreement
A Massachusetts loan agreement sets the loan terms. There is no general civil rate cap, but interest over 20 percent per year is criminal usury.
Find out where you stand in Massachusetts
What kind of loan are you putting in writing?
DocDraft provides document preparation, not legal advice.
Introduction
A Massachusetts loan agreement is a written contract that sets out how much a lender hands over, how the borrower repays it, and what interest applies, and the state places no general civil ceiling on that rate as long as the parties put it in writing. Massachusetts is unusual on interest: there is no general civil ceiling, and the parties may lawfully contract for any rate of interest as long as the agreement is in writing (General Laws Chapter 107 Section 3). The real limit is criminal. Charging interest and expenses that add up to more than 20 percent per year is criminal usury under Chapter 271 Section 49, unless the lender first notifies the Attorney General of intent to make such loans and keeps records. So a private written loan should stay at or below 20 percent per year unless that notice has been filed. If a loan is silent on the rate, the legal rate is 6 percent per year, and any rate above 6 percent must be in writing to be recovered. Making an occasional private loan does not by itself require a license: the small-loan license applies only to a person engaged in the business of making loans of 6,000 dollars or less at a rate over 12 percent (Chapter 140 Section 96), so a one-off personal loan is not licensed. Once the rate is set, a sound Massachusetts 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 contract can be enforced for six years (Chapter 260 Section 2), and a signed agreement is what lets you recover a rate above the 6 percent legal rate. DocDraft builds your Massachusetts loan agreement from your facts, with attorney review available before you sign.
Key Things to Know
- 1
Think of the agreement as the written record of a loan: it names the amount lent, the interest the borrower owes, the payment dates, and the consequences of missing them, and in Massachusetts the parties are free to set that interest rate in writing.
- 2
Massachusetts has no general civil usury cap. The parties may contract for any rate of interest as long as the agreement is in writing (General Laws Chapter 107 Section 3). The real limit is criminal: interest and expenses whose aggregate exceeds 20 percent per year is criminal usury unless the lender first notifies the Attorney General (Chapter 271 Section 49).
- 3
If a loan is silent on the rate, the Massachusetts legal rate is 6 percent per year (General Laws Chapter 107 Section 3). A rate above 6 percent can be recovered in court only if the agreement to pay it is in writing.
- 4
You do not need a license to make an occasional private loan. The Massachusetts small-loan license applies only to a person engaged in the business of making loans of 6,000 dollars or less at a rate over 12 percent per year (General Laws Chapter 140 Section 96), overseen by the Division of Banks. A one-off personal loan is not the business of small lending.
- 5
Massachusetts sets no separate flat late-fee cap for a private loan. Keep any late charge reasonable, and make sure the interest and expenses together stay at or below the 20 percent per year criminal-usury line (Chapter 271 Section 49) unless the Attorney General notice has been filed.
- 6
Put the loan in writing and keep it. A rate above the 6 percent legal rate must be in writing to be recovered, and a lawsuit on a contract must be filed within six years (General Laws Chapter 260 Section 2). 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 Massachusetts, a few decisions shape the document: which option to choose and what each one means. The Loan Agreement guide walks through them.
Open the Loan Agreement guideCustomize your Loan Agreement Template with DocDraft
Massachusetts Requirements for Loan Agreement
Maximum Interest Rate (Criminal Usury Line)
Massachusetts has no general civil usury cap, so the parties may contract for any rate in writing. The operative limit is criminal: interest and expenses whose aggregate exceeds 20 percent per year is criminal usury unless the lender first notifies the Attorney General (General Laws Chapter 271 Section 49). Keep a private loan at or below 20 percent per year and state the rate as a number.
Legal Rate When the Contract Is Silent
If a loan does not state a rate, Massachusetts applies a 6 percent per year legal rate (General Laws Chapter 107 Section 3). A rate above 6 percent can be recovered in court only if the agreement to pay it is in writing. Always write the agreed rate into the agreement so the 6 percent default does not apply by accident.
Lender Licensing (Small-Loan License)
A Massachusetts small-loan license, administered by the Division of Banks, is required only of a person engaged in the business of making loans of 6,000 dollars or less at a rate over 12 percent per year (General Laws Chapter 140 Section 96). An individual making an occasional private loan is not in the business of small lending and generally does not need a license.
Freedom to Contract for a Rate in Writing
Unlike most states, Massachusetts sets no fixed civil interest ceiling. It is lawful to pay, reserve, or contract for any rate of interest, and any rate above the 6 percent legal rate is enforceable if the agreement to pay it is in writing (General Laws Chapter 107 Section 3). The only ceiling is the 20 percent criminal-usury line in Chapter 271 Section 49, subject to the Attorney General notice.
Late Fees Are Bounded by the 20 Percent Line
Massachusetts sets no separate flat statutory late-fee cap for a private loan. Keep any late charge reasonable and tied to the lender actual costs, and make sure the interest and expenses together, including the late charge, stay at or below the 20 percent per year criminal-usury line (General Laws Chapter 271 Section 49) unless the Attorney General notice has been filed.
Put the Loan in Writing
A loan need not be written to be enforceable in Massachusetts, but writing it down is strongly advised. A rate above the 6 percent legal rate can be recovered only if the agreement to pay it is in writing (General Laws Chapter 107 Section 3), and a contract action carries a six-year period to sue (Chapter 260 Section 2). 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 six years in Massachusetts, because contract actions must be commenced within six years after the cause of action accrues (General Laws Chapter 260 Section 2). The clock runs from the default. Keeping a signed written agreement and a record of payments gives you a clear, provable claim within that period.