Updated October 12, 2026. Quick answer: A loan to an individual for a personal, family or household purpose, payable in installments or carrying a finance charge, made by someone not regularly engaged in lending is a consumer related loan, capped at 25% a year when it is within the Regulation Z exempt threshold or secured by land or the borrower’s home (Ind. Code 37-2-2-13.3 and 37-2-4-42); 8% a year applies when the parties do not agree on a rate (Ind. Code 24-4.6-1-102).
Indiana promissory note at a glance
| Item | What the documents say |
|---|---|
| Maximum interest rate on a private loan | 25% a year on a consumer related loan, a personal, family or household loan by someone not regularly engaged in lending (Ind. Code 37-2-4-42); a lender regularly engaged in consumer lending has its own ceilings |
| Rate if the note names none | 8% a year until payment of judgment |
| Penalty for charging too much | Receiving more than twice the 36% rate in Ind. Code 37-2-4-35(b)(1)(A), above 72% a year, on a consumer or consumer related loan is loansharking, a felony, and the loan is void (Ind. Code 35-45-7) |
What Indiana law says about interest
When the parties do not agree on the rate, interest on loans is 8% per annum until payment of judgment.
Receiving more than twice the 36% rate in Ind. Code 37-2-4-35(b)(1)(A), that is above 72% a year, is loansharking, a Level 6 felony, or a Level 5 felony if force or the threat of force is used to collect; it reaches consumer loans and consumer related loans, and any loan collected by force, and a loan made through loansharking is void (Ind. Code 35-45-7-2 to 35-45-7-4). A lender regularly engaged in consumer lending may charge up to 25% a year on the unpaid principal of a consumer loan (Ind. Code 37-2-4-4), and someone not regularly engaged in lending may charge up to 25% a year on a consumer related loan (Ind. Code 37-2-4-42).
The sources in their own words
- Rate when none is agreed: “When the parties do not agree on the rate, interest on loans” (Indiana Code 2026, Title 24, Article 4.6, Chapter 1).
- Rate when none is agreed: “the rate of eight percent (8%) per annum until payment of judgment” (Indiana Code 2026, Title 24, Article 4.6, Chapter 1).
- Interest limit: “twenty-five percent (25%) per year on the unpaid balances of the principal” (Indiana Code 2026, Title 37).
- Exemption or penalty: “commits loansharking, a Level 6 felony. However, loansharking is a Level 5 felony if force or the threat of force is used to collect” (Indiana Code 2026, Title 35, Article 45, Chapter 7).
- Time limit to sue: “commenced within six (6) years after the cause of action accrues” (Indiana Code 2026, Title 34).
- Signature: “A person is not liable on an instrument unless:” (Indiana Code 2026, Title 26).
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Signing the note: signature, witness, notary
Under Ind. Code 26-1-3.1-401 a person is not liable on an instrument unless the person signed it or an agent signed for them. A note is signed by the person who promises to pay.
None of the sections read for Indiana 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
An action on a promissory note or other written contract for the payment of money executed after August 31, 1982 must be commenced within six years after the cause of action accrues.
A worked example: a $20,000 note
Suppose a relative lends you $20,000 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): $405.53 a month, computed here from these assumed inputs, not quoted. Over the 60 payments that is $24,331.80 in total, of which $4,331.80 is interest.
The 8% rate is an assumed figure for the illustration, not a recommended or typical one; the Indiana rules above decide what a lender may charge. 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 25% ceiling reaches only a consumer related loan as Ind. Code 37-2-2-13.3 defines it: an individual borrower, a personal, family or household purpose, and an amount within the Regulation Z exempt threshold or a loan secured by land or the borrower’s home. Check the definition before relying on it.
- Indiana’s other lending statutes were read only as far as the extracts quoted above.
- Silence on a witness or notary in the sections read is not proof that no other Indiana law requires one.
Common mistakes
- Assuming a family loan has no cap: a personal loan by someone not regularly engaged in lending can be a consumer related loan capped at 25% a year (Ind. Code 37-2-4-42).
- Leaving the rate out: the legal rate of 8% applies when a note names none, and it is rarely what the parties meant.
- Waiting too long to enforce: Indiana allows 6 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
- Indiana Code 2026, Title 24, Article 4.6, Chapter 1: https://iga.in.gov/ic/2026/Title_24/Article_4.6/Chapter_1.pdf
- Indiana Code 2026, Title 37: https://iga.in.gov/ic/2026/Title_37.pdf
- Indiana Code 2026, Title 35, Article 45, Chapter 7: https://iga.in.gov/ic/2026/Title_35/Article_45/Chapter_7.pdf
- Indiana Code 2026, Title 34: https://iga.in.gov/ic/2026/Title_34.pdf
- Indiana Code 2026, Title 26: https://iga.in.gov/ic/2026/Title_26.pdf
Sources: the primary documents linked above, read on October 12, 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.