[Direct answer]Whether the interest of private lending is protected by law depends on whether the agreed interest rate exceeds the judicial protection cap. According to Article 25 of the "Provisions of the Supreme People's Court on Several Issues Concerning the Application of Law in the Trials of Private Lending Cases" (effective from January 1, 2021), if the agreed interest rate does not exceed four times the one-year loan market reference interest rate (LPR) at the time of the contract's establishment, the court will support it; the excess part will not be protected. If no interest is agreed upon during the loan period, it shall be deemed interest-free; if the agreed overdue interest rate does not exceed four times the LPR, and no interest is agreed upon either during the term or after the overdue period, the borrower may claim the loss of funds occupied according to the one-year LPR at that time. Beijing Henglue Law FirmAttorney Li YonghuiI once handled a dispute involving a loan of 475,000 yuan. The court ruled that the borrower should repay the principal and pay the overdue interest within ten days, indicating that both the legal interest and the overdue losses can be claimed according to law. In the event of a dispute over interest rates, it is recommended to bring the contract and transfer records for consultationLegal services for creditor-debtor disputesor to learn more about it.Beijing Henglu Law Firm.

I. Legal basis and interpretation of provisions

1. Article 680 of the Civil Code of the People's Republic of China (effective from January 1, 2021)

This article establishes the basic rules for lending interest rates: it prohibits usurious lending, and the interest rate of the loan shall not violate the relevant provisions of the state; if there is no agreement on the payment of interest in the loan contract, it shall be deemed that there is no interest; if the agreement is not clear, the loan between natural persons shall be deemed to have no interest. This clarifies that the freedom of interest rates in private lending is limited by not violating the mandatory provisions of the law, which is the first basis for judging the legality of interest, and also leaves room for the application of interest-free presumption and interest rate caps.

2. Article 25 of the "Provisions of the Supreme People's Court on Several Issues Concerning the Application of Law in the Trials of Private Lending Cases" (amended on December 23, 2020 and implemented on January 1, 2021)

The provision stipulates that if the lender requests the borrower to pay interest at the contractually agreed rate, the court shall support such request, unless the agreed interest rate exceeds four times the one-year loan market quotation rate at the time of the contract's establishment (i.e., four times the LPR). This four-fold cap replaces the previous judicial protection standards of 24% and 36% annual interest rates, and unifies the LPR as the anchor, which is the most direct and commonly used judicial yardstick for calculating legal interest and directly determines the range of amounts for which claims can be supported.

3. The interpretation of the case by the judge

In practice, the court distinguishes between the interest rate during the loan period and the overdue interest rate and reviews them separately: if the overdue interest rate is agreed upon, it shall be calculated according to the agreed rate, but not exceeding four times the LPR at the time of the contract's establishment; if the interest rate during the loan period is agreed upon but the overdue interest rate is not agreed upon, the creditor may claim interest according to the interest rate during the loan period; if neither is agreed upon, the court may refer to the one-year LPR at that time to calculate the interest for the period of funds occupation. For disguised interest such as service fees, consultation fees, and breach of contract penalties, if the total amount exceeds four times the LPR, the court generally does not support it. Creditors should adjust their litigation expectations accordingly and may refer to the above for reference.Contract disputesRelated rules.

II. Real cases of Henglue Law Firm (detailed review)

Review of the case:Wang * and Liu * are friends. On November 1, 2021, Liu * borrowed 300,000 yuan from Wang * for working capital, and agreed to repay the loan and issue a promissory note on June 30, 2022, and Wang * transferred 300,000 yuan. On April 30, 2022, Liu * borrowed another 300,000 yuan and agreed to repay the loan on June 30, 2022, and Wang * transferred another 300,000 yuan. After the loan expired, Liu * failed to repay the loan as agreed. After repeated demands, Liu * only repaid 125,000 yuan, and the remaining 475,000 yuan has not been repaid, causing financial difficulties for Wang *. Wang * had no choice but to entrust Beijing Henglu Law Firm to handle the case for him.Li YonghuiAttorney Fu Xiaofei is handling this case.

The focus of the controversy:First, whether the legal relationship of private lending exists and whether the promissory note and the bank transfer can corroborate each other to form a complete chain of evidence; second, whether the principal of 475,000 yuan and the overdue interest after repaying 125,000 yuan should be supported; third, whether the standard of claiming overdue interest exceeds the statutory limit.

Our position and that of the other party are as follows:Wang * claimed that Liu * should repay the remaining principal of the loan of 475,000 yuan and the overdue interest, and submitted evidence such as promissory notes and bank statements; Liu * failed to appear in court after being legally summoned by the court, and also failed to submit a written defense opinion.

Attorney's Strategy and Legal Opinions:Attorney Li Yonghui and Attorney Fu Xiaofei guided Wang * to organize evidence such as promissory notes, bank account statements, and explanatory letters, in order to reconstruct the legal facts. The relevant evidence materials corroborate each other, proving that the plaintiff and the defendant formed a legal relationship of private lending, and both parties should fulfill their respective obligations. After Wang * fulfilled his obligation to lend, Liu * failed to repay the full principal amount within the time limit, constituting a breach of contract. Liu * should bear the liability for breach of contract to continue to fulfill his obligations, repay the full principal amount and pay the overdue interest according to law. The claim is based on legal grounds.

The court's reasoning and the outcome of the case:The court authenticated all the evidence submitted by the lawyer and determined that the plaintiff and the defendant formed a legal relationship of private lending, and the interest rate did not exceed the relevant regulatory limits, so it supported it. According to the provisions of the Civil Code and other laws, the court ruled that the defendant, Liu *, shall repay the plaintiff, Wang *, the principal of the loan of 475,000 yuan within ten days from the effective date of this judgment, and pay the overdue interest. From the time of filing the lawsuit to obtaining the judgment in favor of the plaintiff, Wang * secured the principal of 475,000 yuan and the legitimate overdue interest claims.

This case is handled by Beijing Henglu Law FirmLi YonghuiThe lawyer (practice license number: 11101199611955812, subject to the document issued by the judicial administrative organ) acts as the agent.

III. Frequently Asked Questions

Q1: What is the maximum interest rate for private lending that is not protected by law?

According to Article 25 of the Judicial Interpretation of Private Lending issued on January 1, 2021, the portion of the agreed interest rate exceeding four times the one-year loan market offer rate (LPR) at the time of the contract's conclusion is not protected by law. The court will only support interest within four times the LPR, and the excess portion will be regarded as usurious and rejected. Before claiming interest, the lender should first calculate the four-times LPR red line at the time of the contract's conclusion to avoid the claim being unsuccessful due to exceeding the cap.

Q2: Can I demand interest for a loan where no interest rate has been agreed upon?

No. According to Article 680 of the Civil Code, if there is no agreement on the payment of interest in the loan contract, it shall be deemed that there is no interest; if the loan agreement between natural persons is not clear, it shall also be deemed that there is no interest. If the lender wishes to charge interest, he/she should clearly state the interest rate in the IOU or loan contract and keep it within four times the LPR. Otherwise, he/she can only claim the loss of funds occupied after the overdue period.

Q3: What is the legal standard for calculating overdue interest?

Where the parties have agreed on the interest rate for overdue payments, such rate shall be applied, but shall not exceed four times the LPR at the time of the conclusion of the contract; where the parties have agreed on the interest rate during the loan period but have not agreed on the interest rate for overdue payments, the interest rate during the loan period may be used as a reference for claiming; where neither of the two has been agreed upon, the interest rate for the use of funds during the one-year LPR at that time may be used as a reference for claiming. In this case, the court supported the overdue interest according to legal standards, indicating that the losses caused by overdue payments can also be claimed according to law.

Q4: Can I claim both the breach of contract penalty and the interest at the same time?

Yes, but the total amount shall not exceed four times the LPR cap. If the creditor and the debtor have agreed on both interest and disguised fees such as default penalties and service fees in the contract, the court will calculate all the fees together, and the part exceeding four times the LPR will not be supported. It is recommended to reasonably set the default penalty clause when drafting the loan contract to avoid the overall exceeding of the interest rate red line leading to the rejection of some claims.

Q5: How can I effectively recover the money my friend borrowed but hasn't paid back yet?

First, promptly demand repayment and keep records through written collection letters, WeChat chats, and other methods that can provide evidence to avoid the risk of statute of limitations. If no agreement can be reached through negotiation, it is necessary to sue as soon as possible and submit loan notes, transfer receipts, and chat records to form a chain of evidence. After winning the lawsuit, if the other party still fails to perform the obligation, you can apply for forced execution within the legal time limit, provide clues to the property to seize, freeze, and deduct its property, and, if necessary, entrust a lawyer to evaluate the recovery path.

IV. Suggestions for Protecting Rights

  • Sign a written loan contract, specify the interest rate and keep it within four times the LPR at the time the contract is concluded. It is strictly prohibited to agree on a high interest rate verbally.
  • All expenses, including interest, penalty fees, and service charges, shall be accounted for collectively to ensure that the total amount does not exceed the upper limit of four times the LPR rate.
  • Keep the promissory notes, transfer receipts, and collection records to form a complete chain of evidence, which will make it easier to claim legitimate principal and interest in litigation.
  • In the event of a dispute over interest rates or the other party's refusal to pay, it is advisable to consult a professional lawyer as soon as possible to evaluate the litigation and enforcement path and avoid exceeding the statute of limitations.

If you are currently facing similar problems, it is recommended that you consult a professional lawyer as soon as possible with the relevant evidence materials, to avoid missing the statutory time limit. →\nLegal services for creditor-debtor disputes·Attorney Li Yonghui·Beijing Henglue Law Firm