Make a Colorado Promissory Note

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

Usury laws are also an important factor in writing a Colorado promissory note. Regardless of whether the note is secured, there is a limit on the amount of interest that may be charged. Usury law is what sets this rate.

In Colorado, the maximum amount of interest that may be charged depends on a few circumstances. If there is no agreement for a loan, the maximum interest is 8%. However, within a contract, such as a promissory note, the maximum interest rate that may be charged is 45%. In some instances, the maximum consumer loan interest rate is 12% instead of 8%.

You can learn more about interest rates in Colorado by reading this helpful guide created by FindLaw. However, these rates are for personal or consumer loans. They are not for mortgages, business loans, savings and loans, or agricultural laws.

How to Write a Colorado Promissory Note

The first step in creating a Colorado promissory note is to decide whether it is secured or not. If it is secured, it must be titled as such. Failure to properly title the document can mean that, in the event of a dispute, the document is treated as an unsecured note despite the lender’s intentions. Next, gather the right basic information to use in the promissory note:

• The date that the Colorado promissory note was created. This should be listed in the order of month, day, and year.
• Include the full legal name and mailing address of the borrower. The note should also explain that the person named is, indeed, the borrower. For example, John Q. Public, Borrower. If the promissory note is secured, it may be prudent to include the borrower’s physical address. This will help if collateral needs to be retrieved according to the terms of the agreement.
• The full legal name and the mailing address of the lender. The note should also explain that the person or entity named is the lender. For example, Robert Doe, Lender or ABC Auto Financial Corp, Lender.
• The principal amount of the loan. This is the amount that the lender provides to the borrower. This does not include the amount that will be charged during repayment as interest. Review the amount for accuracy.
• The amount of interest that will be charged on the loan. This is generally expressed as per annum (yearly) or APR (annual percentage rate). While the highest amount that may be charged on most consumer loans is either 8% or 12%, it can also be as high as 45% provided that the interest amount is put in writing and the borrower signs the note and understands the interest rate.
• Payment information. Most Colorado promissory notes are paid in installments. These installments may be weekly, biweekly, or monthly. How the installments should be paid must be included. This section should also mention the amount of the payment. If the lender assesses a late fee, the amount should be listed as well as when it will be assessed.

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Let’s take a moment to talk about an additional inclusion of information for Colorado secured promissory notes. Another important component, aside from the proper title, is having an accurate description of the collateral. Without this information, it might be difficult to enforce it as a secured promissory note. The court may hold that the promissory note is unsecured.

Despite whether they’re secured or not, Colorado promissory notes should include the following clauses:

• Interest Due in the Event of Default. The specific purpose of this clause is to list the amount of interest the borrower will pay if they default on the loan.
• Payment Allocation. When a payment is made, the amount is split between the principal balance and the interest charged. This clause explains how the payment is distributed between those two items.
• Prepayment. A prepayment clause explains what happens if the borrower decides to pay off the loan earlier. In some promissory notes, nothing negative occurs. In other notes, the lender may charge the borrower a penalty for paying the loan off early.
• Acceleration. An acceleration clause gives the lender the right to demand the rest of the loan balance if the borrower doesn’t adhere to the terms of the promissory note.
• Attorney Fees and Costs. If a dispute arises, this clause explains how attorney fees and costs will be handled. The two more common arrangements include the borrower and lender paying their own fees and costs and the borrower paying the lender’s attorney fees and costs if the borrower is found to be in default.
• Waiver of Presentments. This clause explains that the borrower is still required to make payments even if the lender is not present when the payments are made.
• Severability. This clause states that if any part of the promissory note is not enforceable, the rest of the note will not be thrown out.
• Conflicting Terms. This clause explains that if the promissory note has conflicting terms, an amendment will be created to clarify the conflict and regulate the agreement.
• Notice. A notice clause explains how the lender will notify the borrower if a lawsuit is filed to obtain a judgment for default on the loans.
• Governing Law. This clause explains which state will govern the agreement.

The borrower and the lender must print their name, sign the agreement, and date it for the document to be properly executed. There is no legal requirement to have the promissory note witnessed or notarized.

A Sample Colorado Promissory Note with Examples for Each Step

A Colorado promissory note can be unsecured or secured; promissory notes in Colorado are regulated by several sections of Colorado's Revised Civil Procedures. A secured promissory note must be titled as such; it must also be further 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 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 Colorado 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 Colorado 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 Colorado 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 Colorado, both unsecured and secured promissory notes must be signed and dated by the borrower, any co-signer, and the lender, who must all print their names on the document. There is no legal requirement for a promissory note to be witnessed or notarized in Colorado. 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 Colorado

National Consumer Law Center

Credit Union National Association Guide to State Usury Laws                                                          

Help Center/Federal Student Aid       

CollegeScholarships.org 

Colorado Department of Personnel & Administration, Division of Human Resources (DHR)