What is a loan agreement in Montana?

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 Montana 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 Montana caps interest on a private loan at the greater of 15 percent or 6 points over the prime rate (Montana Code Annotated Section 31-1-107) and fills a blank rate at 10 percent, stating the rate in writing matters. A written contract can also be enforced for six years.

What is the maximum legal interest rate in Montana?

For a private written loan the parties may agree in writing to any rate not exceeding the greater of 15 percent per year or 6 percentage points above the Federal Reserve prime rate published three business days before the agreement is signed, under Montana Code Annotated Section 31-1-107. This cap applies to private lenders. A regulated lender, other than a deferred deposit or consumer loan licensee, is exempt from the usury limits under Section 31-1-112, so a bank can lawfully charge more.

Is a written loan agreement required in Montana?

A loan does not have to be in writing to be enforceable in Montana, but writing it down is strongly advised. To charge interest above the 10 percent legal rate, up to the Section 31-1-107 cap, Montana requires a written agreement fixing the rate (Montana Code Annotated Section 31-1-106). A written contract also carries a six-year period to sue (Section 27-2-202), so a signed agreement protects both sides.

Do I need a license to lend money in Montana?

Not for a genuine one-off private loan. The Montana Consumer Loan Act, administered by the Division of Banking and Financial Institutions, does not apply to a person who makes fewer than four consumer loans a year with their own funds, does not represent that they are a licensee, and complies with the general interest law (Montana Code Annotated Section 32-5-103). If you make four or more consumer loans a year, you likely need a consumer loan license.

What is the penalty for usury in Montana?

Charging more than Section 31-1-107 allows is usurious. Under Montana Code Annotated Section 31-1-108, taking such a rate is a forfeiture of double the interest the debt carries, and a borrower who paid usurious interest may recover double the interest paid if the action is brought within two years after payment and a written demand for return of the interest was first made. The safest course is to keep a private loan at or below the lawful ceiling.

What interest applies if my loan agreement is silent in Montana?

If a written loan agreement does not state an interest rate, Montana sets the legal rate at 10 percent per year under Montana Code Annotated Section 31-1-106, which applies to money after it becomes due on an instrument in writing or money lent. To charge a higher rate, up to the Section 31-1-107 cap, you must state the rate in a written agreement. Always write the agreed rate into the agreement so the 10 percent default does not apply by accident.

Can I charge a late fee on a loan in Montana?

Yes, if it is reasonable. Montana does not set a general statutory late-fee cap for a plain private written loan, so a late fee is enforced as a matter of contract. Tie any late fee to your real costs from a late payment rather than an arbitrary penalty, and state it clearly in the agreement. Default interest on a private loan still cannot exceed the Section 31-1-107 ceiling.

How long do I have to sue on an unpaid loan in Montana?

For a written loan agreement, you generally have six years to sue in Montana, the period Montana Code Annotated Section 27-2-202 applies to an action founded on an instrument in writing. An oral or open-account obligation carries a shorter five-year limit. The clock usually runs from the default or the last payment. Keeping a signed written agreement gives the longer, easier-to-prove period if you have to collect.

Montana Loan Agreement

A Montana loan agreement sets the loan terms and caps private-loan interest at the greater of 15 percent or 6 points over prime, with 10 percent if left blank.

Find out where you stand in Montana

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Introduction

Every Montana loan agreement is a written contract that captures the sum lent, the repayment plan, and the interest rate, and Montana permits any rate the parties write down up to the greater of 15 percent per year or 6 percentage points above the Federal Reserve prime rate. In Montana the interest you can charge is capped. Under Montana Code Annotated Section 31-1-107, the parties may agree in writing to any rate that does not exceed the greater of 15 percent per year or 6 percentage points above the Federal Reserve prime rate published three business days before the agreement is signed, and if the agreement does not state a rate the law fills the gap at 10 percent per year (Section 31-1-106). That cap binds private individuals, but it does not bind a regulated lender, which Section 31-1-112 exempts from the usury limits. Making an occasional private loan does not by itself require a license: the Montana Consumer Loan Act does not apply to a person who makes fewer than four consumer loans a year with their own funds (Section 32-5-103), so a genuine one-off personal loan is not licensed. Once the rate is set, a sound Montana 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, and a clear signed agreement is what protects both sides if the loan is later disputed. DocDraft builds your Montana loan agreement from your facts, with attorney review available before you sign.

Key Things to Know

1
Read the agreement as the written terms of a loan: how much is owed, when it is due, what interest is charged, and what a default triggers, with Montana allowing a written rate as high as the greater of 15 percent per year or 6 percentage points above the Federal Reserve prime rate.
2
Montana caps interest on a private written loan. Under Montana Code Annotated Section 31-1-107, the parties may agree in writing to any rate not exceeding the greater of 15 percent per year or 6 percentage points above the Federal Reserve prime rate published three business days before the agreement is signed. Keep a private loan within that ceiling.
3
If a written loan agreement does not state an interest rate, Montana law sets the legal rate at 10 percent per year (Montana Code Annotated Section 31-1-106). To charge more than 10 percent, up to the cap, you need a written agreement that states the rate.
4
You do not need a license to make an occasional private loan. The Montana Consumer Loan Act does not apply to a person who makes fewer than four consumer loans a year with their own funds, does not hold out as a licensee, and follows the general interest law (Montana Code Annotated Section 32-5-103). A person routinely lending needs a consumer loan license.
5
A regulated lender is exempt from the cap. Montana Code Annotated Section 31-1-112 exempts a regulated lender, other than a deferred deposit or consumer loan licensee, from all limits on the rate of interest and from the usury statutes. This is why a bank can charge more than a private individual can.
6
Charging above the cap is costly. Under Montana Code Annotated Section 31-1-108, taking a rate greater than Section 31-1-107 allows forfeits double the interest, and a borrower who paid may recover double the interest paid if suit is brought within two years after a written demand.
7
Spell out default and acceleration, and keep the signed agreement. Define what counts as default, include an acceleration clause so the lender can demand the full unpaid balance at once, and remember that a lawsuit on a written contract must be filed within six years (Montana Code Annotated Section 27-2-202).

Key decisions before you file

Before you file a Loan Agreement in Montana, 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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MONTANA LOAN AGREEMENT (Written loan of money with interest and repayment terms; Montana law)

PARTIES. This Loan Agreement is made on [DATE] between [LENDER NAME], of [ADDRESS] (Lender), and [BORROWER NAME], of [ADDRESS] (Borrower).
LOAN AMOUNT (PRINCIPAL). Lender agrees to lend, and Borrower agrees to repay, the principal sum of [AMOUNT IN WORDS] dollars ([AMOUNT]).
INTEREST. The unpaid principal bears interest at [NUMBER] percent per year. On a private written loan, Montana caps the rate at the greater of 15 percent per year or 6 percentage points above the Federal Reserve prime rate under Montana Code Annotated Section 31-1-107, unless the Lender is a regulated lender. If this agreement is left blank as to rate, Montana law sets the legal rate at 10 percent per year.
REPAYMENT. Borrower shall repay the loan by [ ] a single payment of [AMOUNT] due on [DATE]; or [ ] [NUMBER] equal installments of [AMOUNT] each, due on the [DAY] of each month starting [DATE] until paid in full. Payments apply first to accrued interest, then to principal.
PREPAYMENT. Borrower may prepay all or part of the principal at any time without penalty, and interest stops accruing on any amount prepaid.
LATE FEE. If a payment is more than [NUMBER] days late, Borrower shall pay a late charge of [AMOUNT], which the parties agree is a reasonable estimate of Lender costs from the late payment. Montana sets no statutory late-fee cap for a private loan, so keep the charge reasonable.
DEFAULT. Borrower is in default if a payment is more than [NUMBER] days late, if Borrower breaks any promise in this agreement, or if Borrower becomes insolvent or files for bankruptcy.
ACCELERATION. On default, Lender may declare the entire unpaid balance of principal and accrued interest immediately due and payable, after any notice and cure period stated here: [NOTICE TERMS].
COLLECTION COSTS. If the loan is placed for collection, Borrower shall pay Lender reasonable collection costs and attorney fees to the extent permitted by law.
SECURITY. This loan is [ ] unsecured; or [ ] secured by the following collateral: [DESCRIBE]. Any collateral is governed by a separate security agreement.
GOVERNING LAW. This agreement is governed by the laws of the State of Montana.
ENTIRE AGREEMENT. This writing is the entire agreement between the parties and may be changed only in a writing signed by both.

Executed on [DATE].

[LENDER NAME], Lender

[BORROWER NAME], Borrower

Note: This is a plain Montana loan-agreement skeleton for a private written loan. An individual who makes fewer than four consumer loans a year with their own funds is generally not required to hold a license; a person in the business of consumer lending needs a consumer loan license (Montana Code Annotated Section 32-5-103). Keep the rate at or below the greater of 15 percent or 6 points over prime on a private loan unless you are a regulated lender (Montana Code Annotated Section 31-1-107), and keep the signed agreement, because a lawsuit on a written contract must be filed within six years (Montana Code Annotated Section 27-2-202). For the complete builder and other states, see the full Loan Agreement template hub.

Montana Requirements for Loan Agreement

Maximum Interest Rate (Usury Cap)
Montana caps interest on a private written loan. Under Montana Code Annotated Section 31-1-107, the parties may agree in writing to any rate not exceeding the greater of 15 percent per year or 6 percentage points above the Federal Reserve prime rate published three business days before the agreement is signed. State the rate as a number and keep a private loan within that ceiling unless the lender is a regulated lender.
Legal Rate When the Contract Is Silent
If a written loan agreement does not state an interest rate, Montana law fixes the legal rate at 10 percent per year (Montana Code Annotated Section 31-1-106), which applies to money after it becomes due on an instrument in writing or money lent. To charge more than 10 percent, up to the Section 31-1-107 cap, the parties must contract in writing for the higher rate. Always write the agreed rate into the agreement so the 10 percent default does not apply by accident.
Lender Licensing (Consumer Loan Act)
The Montana Consumer Loan Act does not apply to a person who makes fewer than four consumer loans a year with their own funds, does not represent that they are a licensee, and complies with the general interest law (Montana Code Annotated Section 32-5-103). A genuine one-off private loan is therefore not licensed. If you make four or more consumer loans a year, confirm whether you need a consumer loan license from the Division of Banking and Financial Institutions.
Regulated Lenders Are Exempt from the Cap
The usury cap binds private lenders, not every lender. Montana Code Annotated Section 31-1-112 exempts a regulated lender, other than a deferred deposit loan licensee or consumer loan licensee, from all limitations on the rate of interest and from the operation of the usury statutes. A merchant finance operation is also exempt. This is why a bank or licensed lender can lawfully charge more than a private individual can.
Usury Penalty (Double the Interest)
Charging above the lawful ceiling is costly. Under Montana Code Annotated Section 31-1-108, taking a rate greater than Section 31-1-107 allows is a forfeiture of double the interest the debt carries, and a borrower who paid usurious interest may recover double the interest paid if the action is brought within two years after payment and a written demand for its return was first made. Keep a private loan at or below the ceiling.
Put the Loan in Writing
A loan need not be written to be enforceable in Montana, but writing it down is strongly advised. A written agreement is required to charge interest above the 10 percent legal rate (Montana Code Annotated Section 31-1-106), and it fixes the rate, the schedule, and the remedies so they are not left to memory. 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 Montana, the period Montana Code Annotated Section 27-2-202 applies to an action founded on an instrument in writing, usually running from the default or the last payment. An oral or open-account obligation carries only a five-year limit. Keeping a signed written agreement gives the longer, easier-to-prove period if you have to collect.

Find out where you stand in Montana

Introduction

Key Things to Know

Key decisions before you file

Customize your Loan Agreement Template with DocDraft

Montana Requirements for Loan Agreement

Maximum Interest Rate (Usury Cap)

Legal Rate When the Contract Is Silent

Lender Licensing (Consumer Loan Act)

Regulated Lenders Are Exempt from the Cap

Usury Penalty (Double the Interest)

Put the Loan in Writing

Default and Acceleration

Time Limit to Sue on the Debt

Frequently Asked Questions