Alabama Promissory Note: What Is It?
An Alabama promissory note is a written legal agreement between two people. It memorializes a loan and explains how that loan will be paid back, including any interest. Promissory notes may be secured or unsecured. A secured promissory note allows the lender to take something of value if the loan is not repaid as agreed. If you’ve ever entered into a payment agreement to purchase a car, you promised to pay for the car. If you didn’t pay, the financier would take possession of the vehicle. That is the example of security. An unsecured promissory note means that if the borrower doesn’t pay, the lender cannot take something of value to pay them back for the loan. The lender would have to take advantage of other legal remedies. Alabama promissory notes are governed by Alabama Code Title 7 and Alabama Code Title 8.
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 laws for interest in Alabama may be found 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%. To charge interest, a promissory note must be for an amount of 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 that must be included in Alabama promissory notes. You’ll also learn about the additional information that you would need to create a secured note.
The common 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
- How much interest will be charged on the principal amount (remember that the maximum amount you can charge is limited by law and based on how long the promissory note is for)
Next, you’ll need to discuss how repayment of the loan must be made:
- Whether the repayment will be done in installments, such as weekly, biweekly, or monthly payments
- How many payments must be made 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 the payment should be made
- 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 give a description of the property that is acting as security. Make sure 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, interest is limited by state law.
- Payment Allocation. This clause explains how payments will be applied to the balance in terms of how much of the payment will go to the principal balance and how much of it 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 certain requirements aren’t met.
- 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? It could be that each party will take responsibility for their own fees and costs. It could be that the borrower is held accountable for the attorney fees and costs of the lender if they are found by the court to have defaulted on the loan.
- Waiver of Presentments. This clause states that the lender does not have to present the promissory note in order to get paid.
- Non-Waiver. This is a clause that if either party fails to insist on strict performance of the note or to exercise any of their rights listed within int, the entire document is not thrown out.
- Severability. This clause holds that 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 can be used for several purposes including notifying the borrower that the lender can attempt to obtain a judgment against the borrower without notifying them. It can also be used to list the address where the lender and the borrower may be sent legal notices in relation to 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 is required to 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 in the event that a lawsuit arises.
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