Updated October 12, 2026. Quick answer: The legal rate of interest is 12 percent a year, a lender (defined to include natural persons) may not knowingly contract above it except where the statutes allow a higher rate, and a knowing excess costs the lender all interest and one-half of the principal (9 V.S.A. 41a and 50).
Vermont promissory note at a glance
| Item | What the documents say |
|---|---|
| Maximum interest rate on a private loan | 12 percent a year, with higher rates set for specific loan types and, under section 46, for corporate obligations, income-producing business obligations (except borrower-occupied dwellings of four units or fewer), seasonal property and federally backed obligations |
| Rate if the note names none | 12 percent a year |
| Penalty for charging too much | A lender who knowingly contracts above the legal rate may collect no interest and only one-half of the principal |
What Vermont law says about interest
Vermont sets the legal rate at 12 percent per annum, and a lender, defined to include natural persons, may not knowingly contract for interest above that rate except where the statutes allow a higher rate for specific loan types.
Except as specifically provided by law, the rate of interest allowed for the use of money is 12 percent per annum computed by the actuarial method.
Higher rates are set for certain loan types (for example 18 percent on single payment loans by Title 8 regulated lenders and, for an installment loan not otherwise limited, 24 percent a year on the first $1,000 of the balance and 12 percent on the balance above $1,000, or 18 percent APR on the whole balance, whichever is higher), and section 46 lets parties exceed 12 percent for obligations of corporations, for obligations incurred to finance an income-producing business or activity (but not a family dwelling of four units or fewer used as the borrower’s residence, or farm real estate used as the borrower’s residence), for obligations to finance seasonal or part-time property, and for federally guaranteed or insured obligations; for a knowing excess a lender may collect no interest and only one-half of the principal under 9 V.S.A. 50(b), with criminal fines under 50(c).
The sources in their own words
- Rate when none is agreed: “shall be 12 percent per annum computed by the actuarial method” (9 V.S.A. 41a Legal rates).
- Interest limit: “the term “lender” shall include natural persons” (9 V.S.A. 41a Legal rates).
- Exemption or penalty: “the lender shall have no right to collect any interest” (9 V.S.A. Chapter 4 Interest (full chapter)).
- Exemption or penalty: “the parties may contract for a rate of interest in excess of the rate provided in section 41a of this title in the case of: (1) obligations of corporations, including municipal and nonprofit corporations; or (2) obligations incurred by any person, partnership, association, or other entity to finance in whole or in part income-producing business or activity” (9 V.S.A. Chapter 4 Interest (full chapter)).
- Time limit to sue: “must be commenced within six years after the due date or dates” (9A V.S.A. Article 3 Negotiable Instruments (full chapter)).
- Time limit to sue: “shall be commenced within six years after the cause of action accrues” (12 V.S.A. 511 Civil action).
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Signing the note: signature, witness, notary
Under 9A V.S.A. 3-401 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 Vermont 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
Vermont’s enacted UCC 3-118 gives six years after the due date to sue on a note payable at a definite time, and 12 V.S.A. 511 gives six years for a civil action generally.
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 sits inside the Vermont 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
- No loan type in the text read clearly covers an unsecured private note, so 12 percent is shown as the cap and the exceptions are listed, not applied.
- Which exception, if any, reaches a particular loan is a legal question this page does not settle.
- Silence on a witness or notary in the sections read is not proof that no other Vermont law requires one.
Common mistakes
- Charging more than the limit in Vermont, which the table gives as 12 percent a year (higher rates for listed loan types), costs a lender who knowingly or willfully contracts above it all interest and one-half of the principal (50(b)), and the payer can recover the excess (50(a)).
- Leaving the rate out: the legal rate of 12 percent applies when a note names none, and it is rarely what the parties meant.
- Waiting too long to enforce: Vermont 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
- 9 V.S.A. 41a Legal rates: https://legislature.vermont.gov/statutes/section/09/004/00041a
- 9 V.S.A. Chapter 4 Interest (full chapter): https://legislature.vermont.gov/statutes/fullchapter/09/004
- 9A V.S.A. Article 3 Negotiable Instruments (full chapter): https://legislature.vermont.gov/statutes/fullchapter/09A/003
- 12 V.S.A. 511 Civil action: https://legislature.vermont.gov/statutes/section/12/023/00511
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.