The Loan Contract and Interest
Under Article 623 of the Civil Code, under a loan contract the lender transfers money or other fungible things into the borrower’s ownership, and the borrower undertakes to return things of the same kind, quality and quantity. Under Article 625, the parties may agree on interest, but the annual effective interest rate must not exceed 50 percent — a requirement extending to every kind of loan. A mortgage-secured loan contract must state the monthly rate, which, including costs connected with the loan, must not exceed one twelfth of 2.5 times the arithmetic mean of the market rates of loans issued by commercial banks published on the National Bank’s website for the previous year, effective each 1 March. This ceiling does not apply to contracts of a commercial bank, microbank, microfinance organization or credit union.
Limits on Penalties and Sanctions
The Code limits not only interest but every other payment connected with a loan: on issuance, the amount of any commission, financial cost, penalty for breach of any contractual condition and any form of financial sanction must not exceed 0.27 percent of the remaining principal for each day. A one-time penalty of up to 20 GEL on arrears is excluded from that limit, while on each overdue event the aggregate sanction must not exceed 1.5 times the current remaining principal. On refinancing or early repayment, the early-repayment commission may not exceed 2 percent of the remaining principal. These rules also bind a cross-border lender where the loan is governed by Georgian law.
Currency and the Form of Disbursement
A loan of up to 200 000 GEL must be issued only in lari, unless the borrower’s aggregate obligations to the same lender exceed 200 000 GEL as a result; a loan linked to or indexed to a foreign currency is not treated as issued in lari. Under Article 624-1, where a loan is secured by immovable property, a vehicle or other named assets, the lender must transfer the funds to the borrower only in cashless form. In cross-border crediting, the correct choice of the contract currency, amount and form of security is therefore decisive for the contract’s validity.