Make a Arizona Promissory Note

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

In the State of Arizona, the maximum interest that may be charged for a promissory note is 10% per year.

How to Write an Arizona Promissory Note

The first thing that must be done when writing an Arizona promissory note is to title it. For example, “Secured Arizona Promissory Note” or “Unsecured Arizona Promissory Note.” Then, proceed to add the following information:

• The date that the promissory note was created. List this by spelling out the month, listing the day, and then the four-digit year. This will help avoid any confusion in the future over when the parties entered the loan agreement.
• List the full legal name and the mailing address of the borrower. Make sure to identify this person as the borrower. If the note is secured, it is also wise to include the physical address of the lender. This can be beneficial if the lender needs to retrieve the collateral.
• List the full legal name and mailing address of the lender. This should include the city, state, and zip code. If the payment address is different, include the payment address in the promissory note.
• The principal amount of the loan. This information documents the amount loaned. It also shows the difference between the loan amount and the annual interest rate that will accrue. Double-check that this amount is accurate.
• The annual percentage rate charged for the loan. For promissory notes in Arizona, this can be no greater than 10% per year. If a lender charges more than this statutorily capped amount, they may subject themselves to serious legal problems.
• An explanation regarding how to make payments. Most of the time, promissory notes are paid in installments. These installments are usually weekly, biweekly, or monthly. Document the amount of the payment. If there is a late fee that will be charged, it should be noted here as well.

Need help managing your finances or making other important decisions? An Arizona power of attorney gives someone you trust the legal ability to make important decisions on your behalf as long as you understand what you’re signing! Download your Arizona power of attorney today.

When creating a secured Arizona promissory note, remember to include information about the collateral that will act as security. It’s essential to give enough detail to enable the lender to retrieve the collateral if it becomes necessary. If the promissory note doesn’t include the title that shows it is secured and if it doesn’t include a description of the collateral, it may not be considered secured if the borrower defaults.

After the primary information above is listed, the promissory note should include the following clauses:

• Interest Due in the Event of Default. This clause documents the amount of interest that will be charged if the borrower defaults on the loan.
• Payment Allocation. This clause explains how the payment will be split between the principal balance and the interest.
• Prepayment. Sometimes, borrowers want to pay off the loan faster than expected. However, some lenders charge a penalty for doing so. This clause explains what happens when prepayment occurs.
• Acceleration. An acceleration clause gives the lender the right to demand the full balance of the loan if the borrower does not comply with the terms of the promissory note.
• Attorney Fees and Costs. The purpose of this clause is to explain who will pay for attorney fees and court costs if a disagreement occurs over the promissory note. Some Arizona promissory notes state that each party will pay its own fees and costs. Others state that if the borrower is sued because of a default and the lender is granted a judgment, the borrower would also be required to pay the lender’s attorney fees and costs.
• Waiver of Presentments. This clause explains to the borrower that they must make payments even if the lender is not present when the payments are made.
• Severability. A severability clause is important because it states that if any clause or term of the promissory note is unenforceable, the rest of the agreement is still valid.
• Conflicting Terms. This clause states that if the promissory note has any terms in conflict, an amendment will be drawn up in writing to clarify the conflicting issues. The amendment will govern the promissory note instead of the conflicting terms.
• Notice. A notice clause gives information about how notice will take place if the lender files a lawsuit to obtain a judgment against the borrower if they stop paying on the loan.
• Governing Law. This defines which state’s law will govern the agreement.

An Arizona promissory note needs to be signed and dated by the borrower. It is not required to have a witness sign, the lender sign, or a notary.

A Sample Arizona Promissory Note with Examples for Each Step

An Arizona promissory note can be unsecured or secured and must be titled as such. A secured promissory note must be further identified as such 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 section:

• Security and Priority: In this section, the borrower and lender (payee) agree that all obligations under the note will be secured 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 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 specific property should be outlined in a UCC financing statement. When the financing statement is filed with the appropriate government agency, the lender's interest in the specific property is deemed "perfected," giving the lender top priority over future lenders seeking a security interest in the same piece of property.

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

• Definition of Terms: This section includes 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: These are 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. This section should specifically 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/annual percentage rate of interest to be charged (as allowed by applicable Arizona state law governing maximum annual 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 of payments, amount of each payment, the due date of each payment, any late fee to be charged for late payment, and where and how the payments must be made.
• Allocation of Payments: This section describes how much of each payment will be applied to the 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: This clause supplies facts and protections 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 certain 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 Arizona 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 a penalty for doing so.
• 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: This section states that the entire promissory note is not waived if either party waives a certain section of the document.
• Severability: This section states that the rest of the promissory note will still be valid should a particular section be found illegal or incapable of enforcement.
• 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 Arizona, both unsecured and secured promissory notes must be signed and dated by the borrower and any co-signer; the lender is not required to sign the promissory note. There is no legal requirement for a promissory note to be witnessed or notarized in Arizona. 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 Arizona

National Consumer Law Center

Credit Union National Association Guide to State Usury Laws                                                                                                                         

Help Center/Federal Student Aid      

CollegeScholarships.org 

Arizona Student Financial Aid Program