Rhode Island Loan Agreement

Introduction

Key Things to Know

1. 1

   Simply put, a loan agreement records what a Rhode Island borrower owes and on what terms, including an interest rate that for a typical private loan reaches a 21 percent per year ceiling.

2. 2

   Rhode Island caps the interest on a loan. Under R.I. Gen. Laws Section 6-26-2, the maximum lawful rate is the greater of 21 percent per year or an alternate rate equal to 9 percentage points plus the domestic prime rate published in The Wall Street Journal. For an ordinary private loan, 21 percent per year is the operative ceiling. Regulated banks, credit unions, and certain large commercial loans are treated separately.

3. 3

   If a written loan agreement does not stipulate an interest rate, Rhode Island sets the legal rate at 12 percent per year, computed as 12 dollars on 100 dollars for one year (R.I. Gen. Laws Section 6-26-1). To charge a different rate, up to the 21 percent cap, the parties must expressly stipulate it in the agreement.

4. 4

   You do not need a license to make an occasional private loan. A Rhode Island lender license is required only of a person engaged in the business of making or funding loans (Section 19-14-2), and a person who makes fewer than six loans in any consecutive twelve-month period is exempt from licensing (Section 19-14.1-10). Repeated lending as a business requires a license.

5. 5

   Rhode Island does not set a fixed statutory late-fee ceiling for a private loan. Keep any late fee reasonable and tied to your real costs, and make sure the late fee combined with interest does not push the effective rate above the 21 percent maximum lawful rate (Section 6-26-2).

6. 6

   Put the loan in writing and keep it. Rhode Island only honors an interest rate other than the 12 percent legal rate if that rate is expressly stipulated (Section 6-26-1), so the rate belongs in a signed writing. A written, signed agreement also makes the debt and its terms far easier to prove if you have to collect.

7. 7

   Spell out default and acceleration, and mind the deadline to sue. 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. A civil action to collect can generally be brought within ten years (Section 9-1-13).

Rhode Island Requirements for Loan Agreement

• Maximum Interest Rate (Usury Cap)

  Rhode Island caps the interest on a loan. Under R.I. Gen. Laws Section 6-26-2, the maximum lawful rate is the greater of 21 percent per year or an alternate rate equal to 9 percentage points plus the domestic prime rate published in The Wall Street Journal. For an ordinary private loan, 21 percent per year is the operative ceiling. State the rate as a number and keep a private loan at or below 21 percent unless you are exempt or licensed.

• Legal Rate When the Contract Is Silent

  If a written loan agreement does not stipulate an interest rate, Rhode Island fixes the legal rate at 12 percent per year, computed as 12 dollars on 100 dollars for one year (R.I. Gen. Laws Section 6-26-1). The same rate governs interest in business transactions and post-judgment interest absent an express rate. To charge a different rate, up to the 21 percent cap, expressly stipulate it in the signed agreement so the 12 percent default does not apply by accident.

• Lender Licensing (Business of Lending)

  A Rhode Island lender license is required only of a person engaged in the business of making or funding loans or acting as a lender or small loan lender (R.I. Gen. Laws Section 19-14-2). A person who makes fewer than six loans in Rhode Island in any consecutive twelve-month period is exempt from that licensing requirement (Section 19-14.1-10), so an occasional private loan does not need a license. If you lend money repeatedly as a business, confirm whether you must be licensed before you lend.

• Usury Makes the Contract Void

  Charging more than the lawful maximum has consequences. Under R.I. Gen. Laws Section 6-26-4, a contract that violates the usury cap in Section 6-26-2 is usurious and void, and a borrower who has paid on such a contract to a private lender may recover the amount paid. Regulated financial institutions face separate forfeiture rules. Keep any private loan at or below 21 percent per year unless you are an exempt or licensed lender.

• Late Fees Must Stay Reasonable

  Rhode Island does not set a fixed statutory late-fee ceiling for a private written loan, so a reasonable late fee is generally allowed. Tie any late charge to the lender real costs from a late payment rather than an arbitrary penalty, and make sure the late fee combined with interest does not push the effective rate above the 21 percent maximum lawful rate (R.I. Gen. Laws Section 6-26-2). State the late fee clearly in the agreement.

• Put the Loan in Writing

  A loan need not be written to be enforceable in Rhode Island, but writing it down is strongly advised. Rhode Island honors an interest rate other than the 12 percent legal rate only if that different rate is expressly stipulated (R.I. Gen. Laws Section 6-26-1), so the agreed rate belongs in a signed writing. A written agreement also makes the amount, the terms, and the debt far easier to prove. 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 civil action to collect on an unpaid loan can generally be brought within ten years in Rhode Island under the general civil limitation (R.I. Gen. Laws Section 9-1-13), running from when the cause of action accrues, such as the default or the last payment. Because that period is long, keeping a signed, dated written agreement and a record of payments gives you the stronger position if you have to collect.