Make a Arkansas Promissory Note

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

Many promissory notes include interest. Arkansas law states that the parties can agree in writing to a payment of interest that doesn’t exceed the amount of maximum interest that may be charged.

How much interest that may be charged depends on how the loan is structured. For example, the maximum rate of interest on a general loan is 5% above the federal discount rate. The legal maximum rate of interest for consumers is capped at 17%.

How to Write an Arkansas Promissory Note

Both unsecured and secured Arkansas promissory notes require some basic information. Secured promissory notes require information about the asset that is securing the loan. You should include the following information in a promissory note:

• The date that the promissory note was created. This should be the full date: month, date, and year. It is helpful to spell out the name of the month as opposed to using an abbreviation.
• The legal name and mailing address of the borrower. If the note is secured in some way, it is helpful to include the borrower’s physical address.
• The legal name and mailing address of the lender.
• The principal amount of the loan. This can be stated in numbers. Be sure to double-check this amount for typos.
• The annual percentage rate charged by the lender. Remember, Arkansas state law sets the maximum amount of interest that may be charged. Charging more than the legal amount allowed can lead to legal problems for the lender.
• How to make payments. For example, are payments made in installments? The promissory note should list the full amount of the loan and the amount of any late fee that will be charged. If payments are being made, the amount of the payment and the type (for example, monthly or biweekly).

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For secured promissory notes, it is important to include the fact that the promissory note is secured. It should also include information related to the asset that is acting as security. Otherwise, the note may not be considered secured.

There are specific clauses that should also be included in an Arkansas promissory note:

• Interest Due in the Event of Default. This clause lists the amount of interest that will be charged if the borrower defaults on the loan. Remember, the amount of interest that may be charged is limited by state law.
• Payment Allocation. This explains to the borrower how the payments will be applied to the balance. Payments are generally split between both interest and the principal balance.
• Prepayment. A prepayment clause explains whether the borrower will pay a penalty if they prepay the loan. Prepayment means to make a loan payment before it is due. Not all promissory notes penalize the borrower for making early payments.
• Acceleration. An acceleration clause allows a lender to force the borrower to repay what’s left of the balance if the requirements of the promissory note aren’t met.
• Attorney Fees and Costs. This clause relates to who will pay the attorney fees and costs if the parties go to court because the borrower defaults on the loan. Options include each party paying their costs and fees or the borrower, if they’re found in default, will pay the attorney fees and costs for the lender.
• Waiver of Presentments. This clause states that there is no requirement for the lender to be present for the borrower to make a payment on the promissory note.
• Severability. This clause essentially states that if any clause or provision of the Arkansas promissory note is illegal or unenforceable, the remainder of the note is still in effect.
• Conflicting Terms. This clause is important because it outlines that if there are conflicting terms within the note, an amendment will be drafted and attached. The amendment will clarify the conflicting issues and will govern the promissory note.
• Notice. This clause has several purposes. First, it is used to include information about how the notification will take place if the lender tries to get a judgment against the borrower. It may also include information about where official notices regarding the promissory note may be sent to the involved parties.
• Governing Law. This clause clarifies which state’s law will govern the contract.

For a promissory note to be binding, an Arkansas promissory note must be signed and dated by the borrower. If there is a co-signer, they should also sign and date the agreement. Arkansas promissory notes do not need to be notarized. However, having it signed in front of a notary can help reduce any questions regarding the document’s legitimacy.

A Sample Arkansas Promissory Note with Examples for Each Step

An Arkansas promissory note can be unsecured or secured; Arkansas law regulates promissory notes based on the reason for the loan. A secured promissory note must be 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 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 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 Arkansas 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 created, 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 Arkansas 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 payment is to 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 provides the 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 Arkansas 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 are in 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 Arkansas, 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. There is no legal requirement for a promissory note to be witnessed or notarized in Arkansas. 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 Arkansas

National Consumer Law Center

Credit Union National Association Guide to State Usury Laws                                                          

Help Center/Federal Student Aid       

CollegeScholarships.org 

Arkansas Student Loan Authority (ASLA)