promissory note - is double return legal
I am considering lending money to a friend that is in need of funds for his business. He has told me he will double the money I lend to him in one year and has it spelled out in a prommisory note as a lump sum payment twice the amount that was loaned to him. Are the terms legal? Would I have any problems enforcing the terms of the note in the event that he defaults come next year?
1 Answer from Attorneys
Re: promissory note - is double return legal
Yes, you are correct, a 100% interest rate is too high for a loan, which would include a promissory note. You would find the interest rate to be unenforceable. I would have to do more research to determine whether the contract would be enforceable at all (I suspect it would but can't guarantee it) but I think you have confirmed what you know in your gut. This is not a good bargain for either one of you.
Why does he want to pay such a high interest rate? If you both are trying to find some way to help him in his business that you also feel comfortable with, but he is (for whatever reason) not considered a good credit risk, maybe the solution is for him to put up some sort of collateral and you can charge a legal rate of interest. (You'd be safe at up to 12%) Unless you are talking about a fairly small loan, you would want to work with an attorney to make sure your rights are protected in the transaction so that he can't use the collateral to secure another loan later. Anyway, just a thought.
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