In Chicago, a loan between individuals falls under the Illinois Interest Act, which allows up to 9% a year in a written contract, while professional lenders are capped at 36% and supervised by the IDFPR.
Illinois Interest Act: 9% in a written contract
Section 4 of the Illinois Interest Act lets the parties to a written contract agree an annual rate of 9% or less. Many exceptions apply to licensed lenders, but a Lincoln Park resident helping out a friend should keep this benchmark in mind.
Predatory Loan Prevention Act and the 36% cap
Passed in 2021, this law bars non-bank lenders from exceeding a 36% annual percentage rate on consumer loans. It sharply reduced payday lending in Illinois, which pushes some households towards unregistered private lenders.
IDFPR: checking a lender's licence
The Illinois Department of Financial and Professional Regulation issues and publishes consumer lender licences. A private investor approaching Cook County residents without a licence you can look up should be treated as suspect, especially if they ask for a deposit.
Chicago's Polish and Mexican communities
Avondale and Jefferson Park are home to a large Polish diaspora, while Pilsen and Little Village have a population of Mexican origin. Family loans there often fund a home purchase or remittances. A bilingual written agreement limits misunderstandings between generations.
Students at UChicago, Northwestern and UIC
International students, often without an American credit history, turn to relatives to pay an apartment deposit in Hyde Park or Evanston. Our page on the student loan from a private lender sets out precautions for this kind of advance.
Illinois flat-rate tax on interest
Illinois applies a flat income tax of 4.95%, which also covers interest received by a resident lender. That interest is added to income reported to the IRS on Form 1040. A local accountant can check whether any credits apply.
Small claims at the Circuit Court of Cook County
The Circuit Court of Cook County hears small claims of up to 10 000 dollars, at the Daley Center or in suburban district courthouses. A simplified procedure exists for the smallest amounts. The signed promissory note remains the key piece of evidence.
BACP, consumer protection in Chicago
The city's Department of Business Affairs and Consumer Protection receives complaints against local businesses. For loan fraud, the Illinois Attorney General runs a dedicated consumer line. Keep a record of every exchange with the so-called lender.
Loan scams spread on social media
Facebook profiles pose as Christian lenders or Naperville entrepreneurs and promise a loan with no credit check. The script ends with transfer fees. Our report on the loan scam on social media describes these techniques.
Chicago credit unions and community lenders
Several Chicago credit unions and CDFI institutions offer small regulated loans or loans designed to rebuild a credit score. These supervised options give a rate known in advance, unlike anonymous promises found on Craigslist.
Harsh winters and emergency loans between neighbours
A broken boiler in January or an unexpected heating bill often triggers an emergency loan between neighbours in Rogers Park or Bridgeport. Even for 800 dollars, a written message setting the repayment date is enough to prove the debt.
How Chicago compares with Houston and other cities
The Illinois 9% limit is lower than those of New York or Texas. For an overview, see our US guide to the peer-to-peer loan or the page on the private loan in Houston.
Setting up a private loan in Chicago
- Set an annual rate of no more than 9% for a written contract between individuals, unless an Illinois lawyer confirms an exception.
- Draft a promissory note referring to Illinois law, the amount in dollars and the repayment schedule.
- Have the signatures authenticated by a notary public commissioned by the Illinois Secretary of State.
- Pay the funds by an identifiable bank transfer rather than by Zelle to an unknown account.
- Declare interest received to the IRS and to the Illinois Department of Revenue.
- Report any suspicious offer to the Illinois Attorney General and to the FTC.
Useful figures for a loan in Illinois
| Point | Amount or rate | Detail |
|---|---|---|
| Rate in a written contract, Illinois Interest Act | 9% a year (indicative) | Many exceptions for professionals |
| Cap for consumer lenders | 36% APR (indicative) | Predatory Loan Prevention Act of 2021 |
| Illinois tax on interest | 4.95% (indicative) | Flat rate, on top of federal tax |
| Small claims ceiling in Cook County | 10 000 dollars (indicative) | Circuit Court of Cook County |
| Fees demanded before any payout | Likely loss | A scam sign to report |
What to gather before lending in Chicago
- Illinois driver's license, State ID or passport
- Signed and dated promissory note
- Monthly repayment table
- Bank statement showing the transfer
- Proof of income or a scholarship certificate for a student
- Copies of written exchanges setting the terms
Common mistakes made by Chicagoans
- Charging 12% interest between colleagues without knowing that the Illinois Interest Act sets 9% for a written contract between individuals.
- Believing a lender without an IDFPR licence can legally lend at 50% because the borrower signed.
- Sending transfer fees to a fake lender met in a Naperville or Oak Park Facebook group.
- Lending dollars to a relative in Poland or Mexico without anything in writing or proof of the transfer.
- Failing to declare interest received from a friend to the Illinois Department of Revenue, assuming a private loan escapes state tax.
Chicago: your questions about lending between individuals
Can I lend to a friend interest-free in Chicago?
Yes, an interest-free loan is allowed. For large amounts, however, the IRS may impute notional interest if the rate is below the Applicable Federal Rate. A written agreement stating there is no interest and setting the schedule is essential to prove it is not a gift.
Does the 36% cap apply to a private individual in Illinois?
It mainly targets lenders who make consumer loans as a business. An individual who lends occasionally relies instead on the Illinois Interest Act. Have the applicable rules confirmed by a Chicago lawyer or a university legal clinic.
Where can I get free legal advice in Chicago?
The city's law school clinics, Cook County legal aid organisations and the Daley Center help desk guide individuals. They do not replace a lawyer for a major dispute, but they help you prepare a small claims filing.
Must a loan to a relative in Poland be declared?
Any interest received remains taxable in the United States for a resident. Depending on the amount, the bank may also ask where the funds come from. Keep the contract and proof of transfer and, if in doubt, consult a tax adviser familiar with the tax treaty between the two countries.