North Carolina Loan Agreement
A North Carolina loan agreement sets the loan terms and caps interest on a loan of 25,000 dollars or less at 16 percent per year under Section 24-1.1.
Find out where you stand in North Carolina
What kind of loan are you putting in writing?
DocDraft provides document preparation, not legal advice.
Introduction
A loan agreement records a lender's advance and a borrower's promise to repay it with interest; in North Carolina the lawful rate turns on the size of the loan, reaching 16 percent per year on a loan of 25,000 dollars or less. In North Carolina the interest you can charge is capped by the size of the loan. Under General Statutes Section 24-1.1, on a loan of 25,000 dollars or less the parties may agree to the higher of 16 percent per year or a floating rate tied to the six-month Treasury bill yield plus 6 percent; on a loan of more than 25,000 dollars the parties may agree to any rate. A small loan under 5,000 dollars to a person for personal or household use is separately capped at 36 percent per year. If the agreement is silent, the legal rate is 8 percent per year (Section 24-1). Making an occasional private loan does not by itself require a license, but a person engaged in the business of lending 25,000 dollars or less must be licensed under the North Carolina Consumer Finance Act, and a loan made without a required license is void so the lender collects nothing (Section 53-166). Once the rate is set, a sound North Carolina 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 three years (Section 1-52), and a clear signed agreement is what protects both sides if the loan is later disputed. DocDraft builds your North Carolina loan agreement from your facts, with attorney review available before you sign.
Key Things to Know
- 1
A loan agreement, in everyday terms, writes down what a North Carolina borrower owes and when, along with an interest rate that on a loan of 25,000 dollars or less can reach the higher of 16 percent per year or a Treasury-linked figure.
- 2
North Carolina caps interest by loan size. Under General Statutes Section 24-1.1, on a loan of 25,000 dollars or less the parties may agree to the higher of 16 percent per year or the six-month Treasury bill rate plus 6 percent; on a loan of more than 25,000 dollars any agreed rate is allowed. State the rate as a number in the agreement.
- 3
If a loan agreement does not state a rate, North Carolina applies the legal rate of 8 percent per year (Section 24-1). To charge more, up to the 16 percent cap on a loan of 25,000 dollars or less, you must state the higher rate in the agreement.
- 4
Small consumer loans are capped harder. A loan under 5,000 dollars to a natural person primarily for personal, family, or household purposes may not exceed a combined 36 percent annual percentage rate (interest plus fees). Keep a small personal loan at or below that ceiling.
- 5
You do not need a license to make an occasional private loan, but a person engaged in the business of lending 25,000 dollars or less must be licensed under the North Carolina Consumer Finance Act. A loan made without a required license is void, and the lender may collect no principal or charges (Section 53-166).
- 6
Put the loan in writing and keep it. A lawsuit on a written contract must generally be filed within three years in North Carolina (Section 1-52). A written, signed agreement is far easier to enforce than an oral understanding.
- 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 North Carolina, 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
North Carolina Requirements for Loan Agreement
Maximum Interest Rate (Usury Cap)
North Carolina caps interest by loan size. Under General Statutes Section 24-1.1, on a loan of 25,000 dollars or less the parties may agree to the higher of 16 percent per year or the six-month Treasury bill rate plus 6 percent; on a loan of more than 25,000 dollars any agreed rate is allowed. State the rate as a number and keep a small personal loan at or below 16 percent unless a higher Treasury-based rate applies.
Legal Rate When the Contract Is Silent
If a loan agreement does not state an interest rate, North Carolina fixes the legal rate at 8 percent per year (General Statutes Section 24-1). To charge more, up to the 16 percent cap on a loan of 25,000 dollars or less, the parties must state the higher rate in the agreement. Always write the agreed rate into the agreement so the 8 percent default does not apply by accident.
Small Consumer Loan APR Cap
A loan under 5,000 dollars to a natural person primarily for personal, family, or household purposes may not carry a combined annual percentage rate (interest plus fees) greater than 36 percent in North Carolina. This tighter cap sits below the general 16 percent contract rate for small personal loans, so keep any small consumer loan at or below the 36 percent APR ceiling.
Lender Licensing (Consumer Finance Act)
A North Carolina Consumer Finance Act license, administered by the Commissioner of Banks, is required only of a person engaged in the business of lending or servicing loans of 25,000 dollars or less (General Statutes Section 53-166). An individual making an occasional private loan is not in the business of lending and generally does not need a license. A loan made without a required license is void, and the lender may collect no principal or charges.
Loans Over 25,000 Dollars Have No Rate Cap
On a loan with a principal of more than 25,000 dollars, North Carolina lets the parties agree to any rate of interest (General Statutes Section 24-1.1). The 16 percent ceiling and the Consumer Finance Act licensing requirement apply to loans of 25,000 dollars or less, so the size of the loan changes both the rate cap and whether a license is needed. Confirm the loan size before setting the rate.
Late Fees Must Be Reasonable
North Carolina does not set a flat statutory late-fee cap on a private written loan, though specific caps apply to licensed consumer-finance 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 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 three years in North Carolina, running from the default or from the last payment or written acknowledgment of the debt (General Statutes Section 1-52). The window is shorter than in many states, so do not delay, and keep a signed, dated agreement so the start of the three-year period is clear.