Virginia Loan Agreement

Introduction

Key Things to Know

1. 1

   A loan agreement is the written proof of a loan: the principal, the rate, the schedule, and what happens if payments stop. In Virginia the recorded rate must stay at or below 12 percent, because a contract charging more is void.

2. 2

   Virginia caps interest on a private loan at 12 percent per year (Va. Code Section 6.2-303), and the penalty is severe: a contract that charges more is void, and the lender may not collect principal, interest, fees, or other charges. Keep a private loan at or below 12 percent unless a specific law lets you charge more.

3. 3

   If a Virginia loan agreement is silent and interest is owed, the law implies a legal rate of 6 percent per year (Va. Code Section 6.2-301). To charge a different rate, up to the 12 percent cap, write the agreed rate into the agreement.

4. 4

   You do not need a license to make an occasional private loan at or below the cap. A Virginia consumer finance license is required only of a person who engages in the business of making loans to individuals and charges more than the 12 percent permitted by Section 6.2-303 (Va. Code Section 6.2-1501).

5. 5

   The usury penalty makes accuracy essential. Because a contract over 12 percent is void and uncollectible under Section 6.2-303, state the rate clearly as a number and confirm it does not exceed 12 percent before both parties sign.

6. 6

   A late fee should be reasonable. Virginia sets no flat statutory late-fee cap for a private loan, so tie any late charge to your real costs from a late payment; an amount that operates as an unreasonable penalty may not be enforced.

7. 7

   Put the loan in writing and spell out default and acceleration. Define default as a payment missed 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. A lawsuit on a signed written contract can be brought for five years (Va. Code Section 8.01-246).

Virginia Requirements for Loan Agreement

• Maximum Interest Rate (Usury Cap)

  Virginia caps interest on a private loan at 12 percent per year (Va. Code Section 6.2-303). No contract may charge more unless a specific law permits it. State the rate as a number and keep a private loan at or below 12 percent. Licensed lenders such as consumer finance companies, short-term lenders, and motor vehicle title lenders may exceed 12 percent under their own chapters, but a private lender may not.

• The Usury Penalty Voids the Contract

  Virginia treats usury harshly. Under Va. Code Section 6.2-303, a contract that charges interest above the 12 percent limit is void, and the lender has no right to collect, receive, or retain any principal, interest, fees, or other charges. An over-limit loan can therefore cost the lender the entire amount lent, not just the excess interest. Confirm the rate is at or below 12 percent before both parties sign.

• Legal Rate When the Contract Is Silent

  If a Virginia loan agreement is silent and interest is owed, the law implies the legal rate of 6 percent per year (Va. Code Section 6.2-301). This default only fills a gap when the parties did not fix a rate. To charge a different rate, up to the 12 percent cap, write the agreed rate into the agreement so the 6 percent default does not apply by accident.

• Lender Licensing (Consumer Finance License)

  A Virginia consumer finance license is required only of a person who engages in the business of making loans to individuals and charges interest greater than the 12 percent permitted by Section 6.2-303 (Va. Code Section 6.2-1501). An individual who makes an occasional personal loan at or below 12 percent is not required to be licensed. A lender who wants to charge more than 12 percent must obtain a license from the State Corporation Commission before lending.

• Late Fees Should Be Reasonable

  Virginia sets no flat statutory late-fee cap for a private one-off loan, so a late charge is judged under general contract law. Set any late fee as a reasonable estimate of the lender's actual costs from a late payment rather than an arbitrary penalty, because an amount that operates as a penalty may not be enforced. State the late fee and any grace period clearly in the agreement.

• Put the Loan in Writing

  A loan need not be written to be enforceable in Virginia, but writing it down is strongly advised. A written agreement fixes the rate, which must stay at or below the 12 percent cap for a private loan (Va. Code Section 6.2-303), and it makes the repayment terms clear. A signed written contract also carries a five-year period to sue, longer than for an unwritten contract. 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 lawsuit to collect on a signed written loan agreement must generally be filed within five years in Virginia (Va. Code Section 8.01-246), whether or not the writing is under seal. An unwritten contract carries a shorter three-year limit. Keeping a signed written agreement gives the longer, easier-to-prove period if you have to collect.