California Promissory Note
California's usury limit is in the state constitution. A private lender may not charge more than 10 percent a year on a loan for personal, family or household use, and fees count toward that limit. A note that goes over forfeits its interest and exposes the lender to treble damages.
What California law does to this document
The 10 percent ceiling
Parties may agree in writing to interest of up to 10 percent a year on a loan used primarily for personal, family or household purposes. A loan used primarily to buy, build or improve real property is not treated as a personal loan for this rule. If the note states no rate, the rate is 7 percent a year.
Cal. Const., art. XV, § 1Loans for other purposes
For any other loan, the ceiling is the higher of 10 percent a year or 5 percent plus the Federal Reserve Bank of San Francisco's rate on advances to member banks. The Federal Reserve rate is measured on the 25th day of the month before the loan is contracted for or made, whichever is earlier.
Cal. Const., art. XV, § 1(2)Fees count as interest
A lender may not receive more than the permitted interest by charging a fee, bonus, commission, discount or other compensation. An origination or processing charge on a private loan is therefore added to the stated rate when the loan is tested against the ceiling.
Cal. Const., art. XV, § 1Who is exempt
The limits do not apply to banks, credit unions and licensed pawnbrokers, among other listed lenders. They also do not apply to a loan made or arranged by a licensed California real estate broker and secured by a lien on real property. An individual lending to a friend or relative is not on the list.
Cal. Const., art. XV, § 1; Cal. Civ. Code § 1916.1Penalties and compound interest
Under the 1918 Usury Law, a lender who charges more than the lawful rate forfeits the right to collect any interest. A borrower who has paid usurious interest may recover three times the amount paid if suit is brought within one year of payment. Interest may not be compounded unless an agreement to that effect is clearly expressed in writing and signed by the party to be charged. The generator's note states the compounding method in the signed text when compound interest is chosen.
Cal. Civ. Code §§ 1916-2, 1916-3, as described in Wishnev v. Northwestern Mutual Life Ins. Co. (2019) 8 Cal.5th 199Time to sue and attorney's fees
An action on a written contract must be brought within four years. For a note that is a negotiable instrument payable at a definite time, the Commercial Code allows six years after the due date. If the note awards attorney's fees to one side, California makes the clause reciprocal, so the prevailing party recovers fees whichever party the note names.
Cal. Code Civ. Proc. § 337(a); Cal. Com. Code § 3118(a); Cal. Civ. Code § 1717(a)Where people go wrong in California
- Entering a rate above 10 percent on a personal loan between individuals, because the generator does not check the rate against California's ceiling and a note over the ceiling forfeits all interest under the Usury Law.
- Adding an origination fee or similar charge that pushes the total return above the constitutional ceiling.
- Relying on the jury trial waiver in the generator's note, when Code of Civil Procedure section 631 lists the only ways a civil jury may be waived in a California court and a clause in a pre-dispute contract is not among them.
How the generator works
A clear, enforceable IOU between two people, with optional interest, a repayment schedule, and current security and default terms. Answer a short interview and the draft assembles as you go, with California already set as the governing state. Download it as PDF or Word. No fee. No account.