What is a loan agreement in New Jersey?

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 New Jersey 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 New Jersey caps interest at 16 percent per year with a written contract (N.J.S.A. 31:1-1) and allows only 6 percent without one, stating the rate in writing matters. A written contract can be enforced for six years.

What is the maximum legal interest rate in New Jersey?

For a private written loan the civil ceiling is 16 percent per year. Under N.J.S.A. 31:1-1, a lender may take up to 6 percent per year absent a written contract, or up to 16 percent per year when there is a written contract specifying the rate. Separately, charging more than 30 percent per year to a person (or 50 percent to a corporation) is criminal usury under N.J.S.A. 2C:21-19. A private lender should keep a loan to an individual at or below 16 percent.

Is a written loan agreement required in New Jersey?

A loan does not have to be in writing to be enforceable in New Jersey, but writing it down is strongly advised and is sometimes necessary. To charge interest above 6 percent, up to the 16 percent ceiling, New Jersey requires a written contract that specifies the rate (N.J.S.A. 31:1-1). A written contract also carries a six-year limitations period to sue (N.J.S.A. 2A:14-1), so a signed agreement protects both sides.

Do I need a license to lend money in New Jersey?

Not for a one-off private loan. A New Jersey Consumer Finance Licensing Act license, from the Department of Banking and Insurance, is required of a person engaged in the business of making consumer loans of 50,000 dollars or less at more than the rate a non-licensee could charge (N.J.S.A. 17:11C). Depository institutions, insurers, and pawnbrokers are exempt. An individual making an occasional personal loan is generally not engaged in that business, but a repeat lender should confirm licensing before lending.

What is the penalty for usury in New Jersey?

On a civil usury violation the lender generally cannot collect the unlawful interest. Charging more than 30 percent per year to a person, or 50 percent to a corporation, is criminal usury under N.J.S.A. 2C:21-19, a crime that can also void the debt. The safest course in New Jersey is to keep a private loan to an individual at or below the 16 percent civil ceiling (N.J.S.A. 31:1-1) unless you are an exempt or licensed lender.

What interest applies if my loan agreement is silent in New Jersey?

If a loan is not put in a written contract specifying a rate, New Jersey allows only 6 percent per year (N.J.S.A. 31:1-1). To charge a higher rate, up to the 16 percent civil ceiling, you must have a written agreement that states the rate. Always write the agreed rate into the New Jersey loan agreement so the 6 percent default does not apply by accident.

Can I charge a late fee on a loan in New Jersey?

Yes, if the fee is reasonable. New Jersey does not set a flat statutory late-fee cap on a private written loan, though specific caps apply to regulated consumer loans and mortgages. Tie any late fee in a New Jersey loan agreement to the real cost of a late payment rather than an arbitrary penalty, and state the grace period and the fee clearly in the contract.

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

For a written loan agreement you generally have six years from the default (or from the last payment or written acknowledgment of the debt) to sue in New Jersey (N.J.S.A. 2A:14-1). Because the period runs from breach and a signed writing is easy to prove, keeping a written, dated New Jersey loan agreement gives you the stronger position if you have to collect.

New Jersey Loan Agreement

A New Jersey loan agreement sets the loan terms and caps interest at 16 percent per year with a written contract under N.J.S.A. 31:1-1.

Find out where you stand in New Jersey

What kind of loan are you putting in writing?

DocDraft provides document preparation, not legal advice.

Introduction

A New Jersey loan agreement is a written contract that lays out the sum borrowed, the terms for repaying it, and the interest, and a written rate lets the parties charge up to 16 percent per year rather than the 6 percent default. In New Jersey the interest you can charge is capped. Under N.J.S.A. 31:1-1, the general rate is 6 percent per year absent a written contract, and up to 16 percent per year when there is a written contract specifying the rate; that is why writing the rate down matters. A separate criminal usury law makes charging more than 30 percent per year to a person, or more than 50 percent to a corporation, a crime (N.J.S.A. 2C:21-19). Making an occasional private loan does not by itself require a license: New Jersey requires a Consumer Finance Licensing Act license only of a person engaged in the business of making consumer loans of 50,000 dollars or less at more than the non-licensee rate (N.J.S.A. 17:11C), and depository institutions and pawnbrokers are exempt. Once the rate is set, a sound New Jersey 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 (N.J.S.A. 2A:14-1), and a clear signed agreement is what protects both sides if the loan is later disputed. DocDraft builds your New Jersey loan agreement from your facts, with attorney review available before you sign.

Key Things to Know

1
The agreement records a loan in writing, covering the amount, the payment dates, the rate, and the remedy for nonpayment, and in New Jersey putting the rate in writing raises the lawful ceiling from 6 percent to 16 percent per year.
2
New Jersey caps most private-loan interest at 16 percent per year. Under N.J.S.A. 31:1-1, a lender may take up to 6 percent per year absent a written contract, and up to 16 percent per year when there is a written contract specifying the rate. Banks and licensed lenders operate under their own separate authority.
3
If a loan is not put in a written contract stating the rate, New Jersey allows only 6 percent per year (N.J.S.A. 31:1-1). To charge more than 6 percent, up to the 16 percent ceiling, you must have a written agreement that states the rate.
4
Charging far above the civil cap can be a crime. New Jersey criminal usury applies to a rate above 30 percent per year for a loan to a person, and above 50 percent per year for a loan to a corporation, LLC, or LLP (N.J.S.A. 2C:21-19). Keep any private loan well below these lines.
5
You do not need a license to make an occasional private loan. New Jersey requires a Consumer Finance Licensing Act license only of a person engaged in the business of making consumer loans of 50,000 dollars or less at more than the non-licensee rate (N.J.S.A. 17:11C). Depository institutions, insurers, and pawnbrokers are exempt. A repeat lender should confirm licensing.
6
Put the loan in writing and keep it. A lawsuit on a written contract must generally be filed within six years in New Jersey (N.J.S.A. 2A:14-1). A written contract is also required to charge more than the 6 percent rate, so writing the rate down protects the lender.
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 New Jersey, 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 guide

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NEW JERSEY LOAN AGREEMENT (Written loan of money with interest and repayment terms; New Jersey 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. In New Jersey a written contract may specify up to 16 percent per year; absent a written contract the rate is 6 percent per year (N.J.S.A. 31:1-1). Charging more than 30 percent per year to a person (or 50 percent to a corporation) is criminal usury (N.J.S.A. 2C:21-19), unless the Lender is an exempt or licensed lender. Keep the rate at or below 16 percent on a loan to an individual.
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 and not a penalty.
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 New Jersey.
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 New Jersey loan-agreement skeleton for a private written loan. An individual making an occasional loan is generally not required to hold a license; a person engaged in the business of making consumer loans of 50,000 dollars or less at more than the non-licensee rate needs a Consumer Finance Licensing Act license (N.J.S.A. 17:11C). Keep the rate at or below 16 percent per year on a loan to an individual and never at or above the criminal-usury lines (N.J.S.A. 31:1-1; N.J.S.A. 2C:21-19), and keep the signed agreement, because a lawsuit on a written contract must be filed within six years (N.J.S.A. 2A:14-1). For the complete builder and other states, see the full Loan Agreement template hub.

New Jersey Requirements for Loan Agreement

Maximum Interest Rate (Usury Cap)
New Jersey caps most private-loan interest at 16 percent per year. Under N.J.S.A. 31:1-1, a lender may take up to 6 percent per year absent a written contract, and up to 16 percent per year when there is a written contract specifying the rate. State the rate as a number and keep a loan to an individual at or below 16 percent unless you are an exempt or licensed lender.
Legal Rate Without a Written Contract
If a loan is not put in a written contract specifying the rate, New Jersey allows only 6 percent per year (N.J.S.A. 31:1-1). To charge more than 6 percent, up to the 16 percent civil ceiling, the parties must have a written agreement that states the rate. Always write the agreed rate into the agreement so the 6 percent default does not apply by accident.
Criminal Usury Limits
New Jersey criminal usury applies to a rate above 30 percent per year for a loan to a person, and above 50 percent per year for a loan to a corporation, LLC, or LLP (N.J.S.A. 2C:21-19). This is a criminal ceiling well above the 16 percent civil cap, and a loan at or above it can be void. Never set the rate on a private loan near these lines.
Lender Licensing (Consumer Finance Licensing Act)
A New Jersey Consumer Finance Licensing Act license, from the Department of Banking and Insurance, is required of a person engaged in the business of making consumer loans of 50,000 dollars or less at more than the rate a non-licensee could charge (N.J.S.A. 17:11C). Depository institutions, insurers, and pawnbrokers are exempt. An individual making an occasional private loan is generally not engaged in that business, but a repeat lender should confirm licensing before lending.
Put the Loan in Writing
A loan need not be written to be enforceable in New Jersey, but writing it down is strongly advised. A written contract is required to charge more than the 6 percent rate up to the 16 percent ceiling (N.J.S.A. 31:1-1), and it carries a six-year period to sue (N.J.S.A. 2A:14-1). Have both parties sign and date the agreement and keep a copy.
Late Fees Must Be Reasonable
New Jersey does not set a flat statutory late-fee cap on a private written loan, though specific caps apply to regulated consumer loans and residential mortgages. A late charge on a private loan should be a reasonable estimate of the lender actual costs from a late payment, not a penalty. State the grace period and the fee clearly in the New Jersey loan agreement.
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 New Jersey, running from the default or from the last payment or written acknowledgment of the debt (N.J.S.A. 2A:14-1). Keeping a signed, dated written agreement gives the longer, easier-to-prove period if you have to collect.

Find out where you stand in New Jersey

Introduction

Key Things to Know

Key decisions before you file

Customize your Loan Agreement Template with DocDraft

New Jersey Requirements for Loan Agreement

Maximum Interest Rate (Usury Cap)

Legal Rate Without a Written Contract

Criminal Usury Limits

Lender Licensing (Consumer Finance Licensing Act)

Put the Loan in Writing

Late Fees Must Be Reasonable

Default and Acceleration

Time Limit to Sue on the Debt

Frequently Asked Questions