Updated October 11, 2026. Quick answer: Up to 10% a year in writing for a loan used mainly for personal, family or household purposes, and 7% a year if the note names no rate (California Constitution, article XV, section 1).
California promissory note at a glance
| Item | What the documents say |
|---|---|
| Maximum interest rate on a private loan | 10% a year by written contract for a loan used primarily for personal, family or household purposes (a loan whose proceeds are used primarily to buy, build or improve real property does not count as that use); other uses: the higher of 10% or 5% plus the San Francisco Federal Reserve Bank advance rate |
| Rate if the note names none | 7% a year |
| Penalty for charging too much | No civil penalty for a private lender is stated in the documents read |
What California law says about interest
For a loan used primarily for personal, family, or household purposes the parties may contract in writing for up to 10 percent per annum; a loan whose proceeds are used primarily for the purchase, construction or improvement of real property is not treated as that use. For other uses the cap is the higher of 10 percent or 5 percent plus the Federal Reserve Bank of San Francisco advance rate. No lender may receive more than the authorized interest by charging any fee, bonus, commission, discount or other compensation.
Absent a written contract for a different rate, the rate on the loan or forbearance of any money, goods, or things in action, or on accounts after demand, is 7 percent per annum.
The Constitution also lists lenders outside the limit, such as licensed pawnbrokers and personal property brokers.
The sources in their own words
- Interest limit: “at a rate not exceeding 10 percent per annum” (California Constitution Article 15 Usury (Sec. 1)).
- Interest limit: “not exceeding the higher of (a) 10 percent per annum” (California Constitution Article 15 Usury (Sec. 1)).
- Rate when none is agreed: “shall be 7 percent per annum but it shall be competent” (California Constitution Article 15 Usury (Sec. 1)).
- Exemption or penalty: “any duly licensed pawnbroker or personal property broker” (California Constitution Article 15 Usury (Sec. 1)).
- Time limit to sue: “Breach of a written contract: 4 years from the date” (Deadlines to sue someone (statute of limitations)).
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Signing the note: signature, witness, notary
None of the sections read for California requires a witness or a notary for the note itself. A note secured by real property is a separate question; see what an intra-family mortgage requires.
How long a lender has to sue
California’s court self-help guide says a suit for breach of a written contract must be brought within 4 years of the breach, and cites Code of Civil Procedure section 337.
A worked example: a $15,000 note
Suppose a relative lends you $15,000 and you sign a note for 5 years at 8% a year, paid monthly. With r = 8%/12 and n = 60 months, the level payment is principal times r divided by (1 minus (1 + r) to the power of negative n): $304.15 a month, computed here from these assumed inputs, not quoted. Over the 60 payments that is $18,249.00 in total, of which $3,249.00 is interest.
The 8% rate sits inside the California limit in the table above, which is why it was chosen. The federal side of a loan between relatives is covered at family loan minimum interest rate and AFR rates by month.
A loan or a gift?
A loan that may never be repaid is taxed differently; see family loan vs gift, forgiving a family loan and gift tax by state.
What the documents do not say
- The Judicial Council guide, not the Code of Civil Procedure text itself, is the document read for the four-year period.
- The documents read state no penalty for a private lender who charges more than the limit.
- Silence on a witness or notary in the sections read is not proof that no other California law requires one.
Common mistakes
- Charging more than the limit in California, which the table gives as 10% (personal, family or household loan), is barred by the Constitution, which also bars collecting more than the authorized interest through fees, bonuses or other compensation; the documents read state no civil penalty for a private lender.
- Leaving the rate out: the legal rate of 7% applies when a note names none, and it is rarely what the parties meant.
- Waiting too long to enforce: California allows 4 years to sue on a written note.
Related: promissory notes by state, promissory note requirements, family loan minimum interest rate, and gift tax by state.
Sources
- California Constitution Article 15 Usury (Sec. 1): https://oag.ca.gov/sites/all/files/agweb/pdfs/consumers/constitution.pdf
- Deadlines to sue someone (statute of limitations): https://selfhelp.courts.ca.gov/civil-lawsuit/statute-limitations
Sources: the primary documents linked above, read on October 11, 2026. General information, not legal or tax advice. Statutes change and courts read them, so confirm anything consequential with a lawyer licensed in your state.