When a person takes out a loan in Michigan, he will likely be charged some interest by the lender. This interest is compensation that the lender receives for running the risk of lending money to a borrower who may not pay her back. If you are a lender, you can charge a borrower finance charges for overdue interest payments, but only if he agrees to them in advance. In addition, the state of Michigan limits the amount of the fees you may charge.
Interest Payments
If you lend a person money, then it is your right to charge him interest on the loan. The type of loan will depend on the amount of interest that you are allowed to charge him. However, it is accepted practice in Michigan, as in other states, to require a borrower to pay money in the form of interest payments to secure a loan from a lender and to make these payments on a regular basis through the life of the loan.
Finance Charges
Finance charges are fees charged to a borrower for the service of financing a loan. You can apply finance charges for many services, including the initiation of the loan, the servicing of the loan and for late fees. However, finance charges cannot be applied arbitrarily. A lender must explain to a borrower what fees will be charged before the borrower signs for the loan.
Loan Contract
In order to charge a borrower finance charges, you must have the borrower agree to these charges before you apply them. When a borrower takes out a loan, he will sign a loan contract that will spell out the terms of the loan. To charge finance charges for late interest payments, you must make sure that these late fees are spelled out in the loan contract and that the borrower agrees to them in advance.
Limits on Fees
Michigan has a number of limits on how much interest a lender can charge a borrower on a loan. For example, with payday loan lenders, the maximum amount that a lender can charge a borrower is approximately 390 percent per annum, with a maximum loan of $600. To determine how much you are allowed to charge in finance fees, you should consult an attorney or the Michigan Secretary of State.
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