Make a Alabama Promissory Note

What Is the Maximum Amount of Interest That May Be Charged?

Alabama promissory notes are subject to usury laws. Usury laws govern how much interest that may be charged. The rules for interest in Alabama are codified in Alabama Code Title 8.

The state has a maximum interest rate of 6% for a promissory note that lasts one year. For promissory notes that will last longer than one year, the maximum interest rate is 8%. For a lender to charge interest, a promissory note must be for at least $100.

How to Write an Alabama Promissory Note

To write your own Alabama promissory note, you should first determine whether the note will be secured or unsecured. For a secured note, you’ll need additional information.

In this section, you’ll learn about the basic information you must include in Alabama promissory notes. You’ll also learn about the additional information that you would need to create a secured note.

The standard components include:

• The date that the promissory note is created
• The name and mailing address of the borrower
• The name and mailing address of the lender
• The amount of money lent to the borrower
• Amount of interest charged on the principal amount (remember that the law limits the maximum amount you can charge based on how long the promissory note is for)

Next, you’ll need to discuss the repayment terms:

• Whether the repayment will happen in installments, such as weekly, biweekly, or monthly payments
• Number of the payments required to repay the loan
• The amount of each payment
• When each payment is due
• Whether a late fee will be assessed because of the late payment
• Where to send the payment
• How the payment should be made (such as by check or money order)

If you’re creating a secured Alabama promissory note, you’ll need to include language into the document that says that the loan is secured. It should also describe the property that is acting as security. Ensure that you include key descriptors such as a serial number, VIN number, color, make, and model.

For both unsecured and secured promissory notes, you’re going to need to create some additional clauses:

• Interest Due in the Event of Default. Remember, state law limits interest.
• Payment Allocation. This clause explains how payments will apply to the balance in terms of how much of the payment will go to the principal balance and how much will go toward interest.
• Prepayment. Prepayment means to make payments before they are due. Some promissory notes have a prepayment penalty and some do not.
• Acceleration. An acceleration clause enables a lender to require the borrower to repay the rest of the balance if the buyer does not meet specific requirements.
• Attorney Fees and Cost. If the lender and the borrower have to go to court because of default, who will be responsible for the attorney fees and court costs? In some cases, each party will take responsibility for their own fees and costs. In other cases, the borrower is found by the court to have defaulted on their loan, they are accountable for the lender’s attorney fees and costs.
• Waiver of Presentments. This clause states that the lender does not have to present the promissory note to get paid.
• Non-Waiver. If either party fails to insist on the strict performance of the note or to exercise any of their rights listed within it, they have not waived these rights.
• Severability. If a provision within the promissory note is illegal or unenforceable, the remainder of the promissory note will still apply.
• Integration. This clause states that the promissory note is the full and final agreement.
• Conflicting Terms. This clause explains that if the promissory note has conflicting terms, an amendment will clarify those terms and govern the promissory note.
• Notice. Notice clauses have several purposes, including notifying the borrower that the lender can attempt to obtain a judgment against the borrower without informing them. It can also list the address where to send the lender and the borrower legal notices concerning the promissory note.
• Governing Law. It is important to have a clause that lists the state that will govern the agreement.

Both unsecured and secured Alabama promissory notes need to be signed. By law, only the borrower must sign and date the agreement. The lender may find it beneficial to sign and date it as well. If there is a co-signer, they should also sign and date the agreement. It is not a legal requirement to have the promissory note notarized, but you may find it helpful if a lawsuit arises.

Need help with handling your finances? An Alabama power of attorney can give someone you trust the legal ability to help you as long as you understand what you are signing.

A Sample Alabama Promissory Note with Examples for Each Step

An Alabama promissory note can be unsecured or secured. A secured promissory note must be identified with specific language and requires a detailed description of the security interest (the property that will serve as the collateral).

A secured promissory note should include the following sections:

• Security and Priority: The borrower and lender (payee) agree that all obligations under the note are guaranteed by the collateral defined in the security agreement entered into between the borrower and lender.  This section contains a general description of the collateral defined specifically in the security agreement.
• A secured promissory note is generally accompanied by a security agreement that allows the lender to seize the collateral (specific property) in the event of default by the borrower.
• The security interest in the property should be outlined in a UCC financing statement. Once you file the financing statement with the appropriate government agency, the lender's interest in the specific property is "perfected," the lender has top priority over future lenders seeking a security interest in the same piece of property.

Both unsecured and secured promissory notes in Alabama should include the following sections:

• Definition of terms: A list of terms and their meanings used in the loan agreement  ("As used in this Agreement, the following terms shall have the meanings set forth below").
• Payments: Provisions relating to the terms for repayment of the amount due, including principal and interest, overdue amounts, default/nonpayment rate, manner of payment, and extension. Note the date the promissory note was devised, the name and mailing address of the borrower and lender, the amount of money loaned to the borrower, the amount of interest to be charged (as allowed by applicable Alabama state law governing maximum interest/usury rates for written contracts), how repayment will be made (installments, interest-only, lump sum, or, in the case of a secured promissory note, a balloon payment), the number, amount, and due date of each payment, any late fee to be charged for late payments, and where/how payment is to be made.
• Allocation of Payments: This section describes how much of each payment applies to interest/principal.
• Guaranty/Co-Signer (optional): In this section, a third party (the guarantor) agrees to be directly or collaterally responsible for the obligation of the borrower to the lender in the event of default (the borrower fails to pay).
• Representations & Warranties: Facts and protection in the event of default, respectively, if the statements made are not true.
• Covenants: A covenant in a loan agreement requires the borrower to fulfill certain conditions, such as punctual payment of principal, or prevents the borrower from taking specific actions.
• Defaults/Interest Due upon Default: This section defines the events that constitute a default and the interest due upon default (as allowed by applicable Alabama state law).
• Acceleration: This section requires the borrower to repay the remaining balance in the event of a default.
• Prepayment: This section states whether there will be a prepayment penalty or if the borrower is allowed to pay a sum of money to the lender before it is due/demanded without penalty.
• Attorney Fees and Costs: This section describes which party will be held responsible for attorney fees and court costs should a case be filed and adjudicated in court due to a default.
• Waiver of Presentments: This section allows the lender to receive payment without presenting the promissory note.
• Non-Waiver: Waiving a section of the document does not waive the entire promissory note.
• Severability: If a particular section is found illegal or incapable of enforcement, the rest of the promissory note will still be valid.
• Integration: This section states that the promissory note constitutes the entire agreement between the parties.
• Conflicting Terms: This section states that an amendment will resolve any issue(s) and be determinative should the promissory note include terms that conflict.
• Notices: This section states the required form of all notices, requests, demands, claims, and other communications under the note, including notice to the borrower that the lender may seek a judgment against the borrower without notice and the addresses to which all official or legal correspondence should be delivered.
• Governing Law: This section defines the state law that will govern the promissory note.
• Dated Signature: In Alabama, both unsecured and secured promissory notes must be signed and dated by the borrower and any co-signer; the lender may also elect to sign and date the note. There is no legal requirement for a promissory note to be notarized in Alabama. Still, the parties may decide to have the document certified by a notary public for protection in the event of a lawsuit.

Promissory Note Resources in Alabama

National Consumer Law Center Guide to State Usury Laws

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