New York Loan Agreement

Introduction

Key Things to Know

1. 1

   Think of a loan agreement as the written record of a New York loan, its principal, its repayment dates, and an interest rate that on an ordinary loan stays at or below 16 percent per year.

2. 2

   New York caps interest on most loans at 16 percent per year. General Obligations Law Section 5-501 sets the rate at 6 percent unless a different rate is prescribed by Banking Law Section 14-a, and Section 14-a fixes that maximum at 16 percent per year. Banks and licensed lenders are governed by their own charters and licenses.

3. 3

   Charging more than 25 percent per year is criminal usury in New York. Penal Law Section 190.40 makes it criminal usury in the second degree, a class E felony, to knowingly charge, take, or receive interest above twenty-five per centum per annum when not authorized by law. Keep any private loan well below this line.

4. 4

   If a written loan agreement does not state an interest rate, New York applies the legal rate of 9 percent per year to money owed (CPLR Section 5004). To charge more than that, up to the 16 percent civil cap, state the rate in the written agreement.

5. 5

   You do not need a license to make an occasional private loan. Banking Law Section 340 requires a license only of a person engaged in the business of making loans of 25,000 dollars or less at more than the non-licensee rate, and it excludes isolated, incidental, or occasional transactions. The New York Department of Financial Services administers those licenses.

6. 6

   A corporate borrower generally cannot raise the civil usury defense (General Obligations Law Section 5-521), but the 25 percent criminal-usury cap still binds a loan to a corporation. For a loan to an individual, keep the written rate at or below 16 percent.

7. 7

   Put the loan in writing and keep it. A lawsuit on a written contract must generally be filed within six years in New York (CPLR Section 213). Define default clearly and include an acceleration clause so the lender can demand the entire unpaid balance at once if the borrower defaults.

New York Requirements for Loan Agreement

• Maximum Interest Rate (Civil Usury Cap)

  New York caps interest on most loans at 16 percent per year. General Obligations Law Section 5-501 sets the rate at 6 percent unless a different rate is prescribed by Banking Law Section 14-a, and Section 14-a fixes that maximum at sixteen per centum per annum. 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.

• Criminal Usury Limit (25 Percent)

  Charging more than 25 percent per year is criminal usury in the second degree in New York, a class E felony (Penal Law Section 190.40). This hard ceiling applies even to a corporate borrower that cannot raise the civil usury defense. Never set the rate on a private loan at or above 25 percent per year.

• Legal Rate When the Contract Is Silent

  If a written loan agreement does not state an interest rate, New York applies the legal rate of 9 percent per year to money owed (CPLR Section 5004); a lower 2 percent rate applies to certain consumer-debt judgments against an individual. To charge more, up to the 16 percent civil cap, write the agreed rate into the agreement so the 9 percent default does not apply by accident.

• Lender Licensing (Banking Law Section 340)

  A New York lender license from the Department of Financial Services is required only of a person or entity engaged in the business of making loans of 25,000 dollars or less to an individual at more than the rate a non-licensee may charge (Banking Law Section 340). The statute excludes isolated, incidental, or occasional transactions, so an individual making an occasional private loan generally does not need a license. If you lend repeatedly as a business, confirm whether you must be licensed.

• Corporations and the Usury Defense

  A corporation, LLC, or LLP generally cannot raise the civil usury defense in New York (General Obligations Law Section 5-521), so the 16 percent civil cap does not protect a corporate borrower the way it protects an individual. The 25 percent criminal-usury cap under Penal Law Section 190.40 still applies to a loan to a corporation. Identify whether the borrower is an individual or an entity before setting the rate.

• Put the Loan in Writing

  A loan need not be written to be enforceable in New York, but writing it down is strongly advised. A written, signed agreement fixes the interest rate, records the repayment terms, and carries a six-year period to sue under CPLR Section 213. Have both parties sign and date the agreement and keep a copy.

• Late Fees Must Be Reasonable

  New York does not set a flat statutory late-fee cap on a private written loan, but a late charge that operates as a penalty rather than a reasonable estimate of the lender actual costs can be challenged and disallowed. Tie any late fee to the real cost of a late payment and state the grace period and the fee clearly in the agreement.

• 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 York, running from the default or from the last payment or written acknowledgment of the debt (CPLR Section 213). Keeping a signed written agreement gives the longer, easier-to-prove period if you have to collect.