Tennessee Loan Agreement
A Tennessee loan agreement sets the loan terms and caps written-loan interest at the formula rate, up to 24 percent per year, with 10 percent if left blank.
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Introduction
In a loan agreement, a lender advances money to a borrower who signs a written promise to repay it with interest on a set schedule, and Tennessee caps that interest at a monthly formula rate that can never top 24 percent a year. In Tennessee the interest you can charge on a written loan is capped by the formula rate, which is the lesser of four percentage points above the average prime loan rate published by the Federal Reserve or 24 percent per year (Tennessee Code Annotated Section 47-14-103 and Section 47-14-102). The Commissioner of Financial Institutions publishes the formula rate each month, so the ceiling moves with the prime rate but can never exceed 24 percent. If a transaction is not a signed written contract, the rate is 10 percent per year, so a lender who wants to charge above 10 percent needs a signed written agreement. Making an occasional private loan does not by itself require a license: Tennessee registration applies to a person engaged in the business of lending as an industrial loan and thrift company (Tennessee Code Annotated Section 45-5-103), not to a one-off personal loan. Once the rate is set, a sound Tennessee 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 lawsuit on a written contract can be filed for six years (Tennessee Code Annotated Section 28-3-109), and a clear signed agreement is what protects both sides if the loan is later disputed. DocDraft builds your Tennessee loan agreement from your facts, with attorney review available before you sign.
Key Things to Know
- 1
A loan agreement is the document that fixes a private loan's amount, repayment schedule, and consequences of nonpayment. Tennessee limits the interest such a written loan can carry to the formula rate, which is capped at 24 percent a year.
- 2
Tennessee caps interest on a written loan at the formula rate. Under Tennessee Code Annotated Section 47-14-103, a written contract signed by the borrower may charge up to the formula rate, defined in Section 47-14-102 as the lesser of four percentage points above the average prime loan rate published by the Federal Reserve or 24 percent per year. The Commissioner of Financial Institutions publishes the current formula rate each month, but it can never exceed 24 percent per year.
- 3
If a loan is not a signed written contract, or the writing does not state a rate, Tennessee applies 10 percent per year to all other transactions (Tennessee Code Annotated Section 47-14-103). To charge more than 10 percent, up to the formula rate, you need a written agreement signed by the borrower.
- 4
You do not need a license to make an occasional private loan. Tennessee registration as an industrial loan and thrift company is required only of a person engaged in the business of making loans (Tennessee Code Annotated Sections 45-5-102 and 45-5-103), which the Department of Financial Institutions oversees. An isolated personal loan is not the business of lending.
- 5
Keep any late fee reasonable. Tennessee does not set a general late-fee cap for a private written loan, so a late charge should be a reasonable estimate of the lender actual costs from a late payment rather than an arbitrary penalty. Registered consumer lenders under Title 45 follow separate charge limits that do not apply to a one-off private loan.
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Put the loan in writing and have the borrower sign. A signed written contract is what lets you charge the formula rate instead of the 10 percent that applies to other transactions (Tennessee Code Annotated Section 47-14-103), and it is far easier to enforce. Have both parties sign and date the agreement and keep a copy.
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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 lawsuit on a written loan contract must generally be filed within six years (Tennessee Code Annotated Section 28-3-109).
Key decisions before you file
Before you file a Loan Agreement in Tennessee, 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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Tennessee Requirements for Loan Agreement
Maximum Interest Rate (Usury Cap)
Tennessee caps interest on a written loan at the formula rate. Under Tennessee Code Annotated Section 47-14-103, a written contract signed by the borrower may charge up to the formula rate, which Section 47-14-102 defines as the lesser of four percentage points above the average prime loan rate published by the Federal Reserve or 24 percent per year. The Commissioner of Financial Institutions publishes the formula rate each month, but it can never exceed 24 percent. State the rate as a number and keep it at or below this cap.
Legal Rate When the Contract Is Silent
If a loan is not a signed written contract, or the writing does not state an interest rate, Tennessee applies 10 percent per year to all other transactions (Tennessee Code Annotated Section 47-14-103). To charge more than 10 percent, up to the formula rate, the parties must contract in a writing signed by the party to be charged. Always write the agreed rate into the agreement so the 10 percent default does not apply by accident.
Lender Registration (Industrial Loan and Thrift Companies Act)
Registration as an industrial loan and thrift company, overseen by the Tennessee Department of Financial Institutions, is required only of a person engaged in the business of making loans (Tennessee Code Annotated Sections 45-5-102 and 45-5-103). An individual making an occasional private loan is not in the business of lending and generally does not need to register. If you lend money repeatedly as a business, confirm whether you must register or hold a license before you lend.
Exempt and Regulated Lenders Follow Other Rates
The formula-rate cap governs a private written loan, but rates fixed by other statutes for particular categories of lenders control instead (Tennessee Code Annotated Section 47-14-103). Banks and industrial banks, savings and loan associations, credit unions, insurance companies, and licensed pawnbrokers fall outside the Industrial Loan and Thrift Companies Act (Tennessee Code Annotated Section 45-5-104). This is why some registered or licensed lenders lawfully charge under different limits than a private individual.
Late Fees Should Be Reasonable
Tennessee does not set a general statutory late-fee cap for a private written loan. A late charge should be a reasonable estimate of the lender actual costs from a late payment rather than an arbitrary penalty, because an unreasonable penalty risks being unenforceable. Registered consumer lenders under Title 45 follow their own separate charge limits that do not apply to an occasional private loan. State any late fee clearly in the agreement.
Put the Loan in Writing and Sign It
A loan need not be written to be enforceable in Tennessee, but writing it down is strongly advised. A written contract signed by the party to be charged is what lets you charge the formula rate instead of the 10 percent that applies to other transactions (Tennessee Code Annotated Section 47-14-103), and it carries a six-year period to sue (Tennessee Code Annotated Section 28-3-109). 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. Charging over the cap can make the excess unenforceable (Tennessee Code Annotated Section 47-14-117).
Time Limit to Sue on the Debt
A lawsuit to collect on a written loan agreement must generally be filed within six years in Tennessee, running from the default or from the last payment or written acknowledgment of the debt (Tennessee Code Annotated Section 28-3-109). Keeping a signed written agreement makes the debt easier to prove, but do not wait: once the six years run, a court can dismiss a collection suit as time barred.