Charging Interest on a Private Loan in Hong Kong: What Cap. 163 Lets You Recover

Lending money to a friend, a relative, or a trusted business contact — and agreeing to charge a bit of interest on top — is common enough in Hong Kong. The trap most people fall into is assuming that as long as both sides agree to a number, that's the end of it. It isn't: the Money Lenders Ordinance (Cap. 163) sets a statutory ceiling on interest, and that ceiling doesn't just apply to licensed money lenders — it applies to ordinary private lending between individuals too. Set the rate too aggressively, and you risk more than losing the interest; the agreement itself may become unenforceable, putting the principal at risk as well.

This article draws on CLIC (the Community Legal Information Centre), a government press release and the Hong Kong Judiciary to walk through exactly when a private loan tips into "carrying on a money-lending business," what the current interest ceiling actually is, what happens once you cross it, and — once you're actually trying to recover the money — how to present a claim for principal and interest at the Small Claims Tribunal.

Private Loan or Carrying On a Money-Lending Business?

The first question worth pinning down is whether this particular loan counts as "carrying on a money-lending business" — because that decides whether you need a licence, but it does not decide whether the interest ceiling applies to you.

Per CLIC, anyone who carries on the business of making loans, or who advertises or holds themselves out in any way as doing so, is required to be licensed. Conversely, if a person is not making loans as a business, no licence is required — the clearest example being a one-off loan to a relative that isn't part of a regular pattern of lending.

Here's the part most people overlook: even where you're exempt from licensing on that basis, you remain subject to section 24 of the Money Lenders Ordinance — CLIC states plainly that section 24, which regulates excessive interest rates, applies to any person, whether or not they are a money lender. In other words, "I only lent to a friend once, I'm not running a loan shark operation" gets you out of the licensing requirement, but it does nothing to exempt you from the interest ceiling.

How High Is Too High? The Current Interest Ceiling

The answer: above 48% per annum is a criminal offence. CLIC states clearly that the Money Lenders Ordinance prohibits any person from lending at an interest rate exceeding 48% per annum; on summary conviction the maximum penalty is a fine of HK$500,000 and 2 years' imprisonment, and on conviction on indictment, a fine of HK$5,000,000 and 10 years' imprisonment.

That 48% ceiling hasn't always been the number. According to the government press release, the statutory interest rate ceiling was lowered from 60% to 48% per annum, and the threshold for a presumed-extortionate rate was lowered from 48% to 36% per annum, both effective 30 December 2022. The change has no retrospective effect — a repayment or interest-payment agreement made before that date isn't affected by the new limits. So if you're holding an older agreement, the first thing to check is when it was actually signed, to know which ceiling applies.

What Happens Between 36% and 48%?

This is the band people most often misjudge as "probably still fine" — in reality, once you're inside it, the agreement is already at serious risk.

CLIC is direct on this: a loan charging interest above 36% but below 48% per annum is presumed to be an extortionate transaction and is generally not enforceable in court. That said, the presumption isn't absolute — the court retains discretion to enforce the loan if satisfied, having regard to all the circumstances of the case, that the rate charged isn't unreasonable or unfair. In practice, once the rate falls into this band, the burden effectively shifts onto the lender to justify why that particular rate was reasonable in that particular transaction — and that's already a costly, uncertain fight to be having.

CLIC also explains what "extortionate" actually means here: a transaction is extortionate where the loan agreement requires the borrower (or a relative of the borrower) to make payments that are grossly exorbitant, or where the transaction otherwise grossly contravenes ordinary principles of fair dealing. Where a court in legal proceedings finds a transaction extortionate, it has discretion to reopen the transaction so as to do justice between the parties, having regard to all the circumstances — and can make such orders and give such directions as it sees fit.

The practical takeaway for a lender: rather than gambling on whether a court will find your rate "reasonable," it's far safer to set the rate clearly below 36% from the outset. There's no upside to risking the recoverability of the entire principal for a few extra percentage points of interest.

Is Compound Interest Even Legal?

Beyond the annual ceiling, there's another trap that catches people when they design a repayment schedule: compounding.

CLIC states plainly that compound interest (including compound default interest) charged by a money lender is illegal and unenforceable — except where the court determines that enforcement would not be inequitable, having regard to all the circumstances. In practice, that carve-out sits at a similarly high bar to the extortionate-transaction discretion above, and isn't something to rely on as a fallback.

For an ordinary private loan, the lesson is simple: a clearly stated simple interest structure — principal, annual rate, and interest period spelled out plainly — is far safer than a compound-interest formula. Compounding may look like a bigger number on paper, but a compound-interest agreement is more exposed to challenge if the matter ever ends up in a recovery dispute, and could end up costing you even the interest you'd otherwise be entitled to.

Contractual Interest vs. Interest on a Judgment

This is a distinction few people think about, but it matters for how you frame a recovery claim: the interest rate you and the other party agreed to in the loan (contractual interest) is a completely different thing from any additional interest a court or tribunal might award on top of a judgment sum once you've actually filed and won (judgment interest).

Per the Hong Kong Judiciary, in High Court and District Court proceedings, an unsatisfied judgment debt can carry interest at the rate determined from time to time by the Chief Justice — currently 8% per annum, effective from 1 July 2026 — on top of the judgment amount, and this is entirely separate from whatever contractual rate you originally agreed. It's worth noting that the Judiciary's page on this primarily addresses High Court and District Court arrangements, and doesn't specifically confirm whether or how this judgment rate applies at the Small Claims Tribunal; if your case is at the Tribunal, it's worth raising the point directly with the Adjudicator at the hearing, or stating your position in the claim form, rather than assuming it automatically applies.

Recovering Principal and Interest at the Small Claims Tribunal

Once you've confirmed the rate you charged is actually lawful, the next question — if the other side still isn't paying — is how to recover the money formally.

If the total you're recovering (principal plus lawful interest) falls within the Small Claims Tribunal's HK$75,000 ceiling, you can use this comparatively simple, lawyer-free route. Filing fees are tiered by claim amount: $20 for claims up to $5,000, $40 for claims over $5,000 up to $25,000, $70 for claims over $25,000 up to $50,000, and $120 for claims over $50,000 up to $75,000.

In practice, it's worth pleading principal and interest as separate, clearly stated figures in your claim: state the principal amount, the date it was lent and the date repayment fell due, then separately set out how the interest was calculated (annual rate, period, total) with transfer records or a loan note attached as evidence (for what a solid loan note actually needs, see How to Write a Loan Note (IOU) in Hong Kong). The advantage of this approach is that even if the Adjudicator has reservations about the interest portion — say, if the rate looks high or the evidence is thin — that doesn't drag down the principal claim, since the two can be assessed independently.

If you're also dealing with an old debt and worried about the limitation period, see How Long Do You Have to Sue for a Debt in Hong Kong?; before filing, it's worth sending a formal demand letter first and pulling your transfer records, messages and any written acknowledgement into a proper evidence bundle. If you'd like company through the process from assessment to filing, see what our practical debt-recovery case guide actually covers.