Make a Connecticut Promissory Note

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

The maximum interest that may be charged in Connecticut is found in the state’s usury law. Connecticut Title 37-4 states that the maximum interest that may be charged on a consumer loan is 12%. Lenders who charge more than this maximum amount may face prosecution by the State of Connecticut.

How to Write a Connecticut Promissory Note

To begin the creation process, it is important to determine whether the Connecticut promissory note is secured or unsecured. If it is secured, that must be reflected in the title. Otherwise, a legal dispute over the note may mean that the court treats the document as unsecured. Next, include the following information:

• The date of creation. This should be formatted as month, day, and year.
• The full legal name and mailing address of the borrower. The promissory note should also indicate that the named individual is the borrower. For example, Jane P. Doe, Borrower. If the promissory note is secured, include the physical address of the borrower. This could be helpful if the collateral must be retrieved because the borrower defaults on their payments.
• The full legal name and mailing address of the lender. The person or entity should also be denoted as the lender. For example, Susan Jones, Lender or Jones Auto Financing Inc., Lender.
• The principal loan made to the borrower. This is the amount that the lender agreed to provide to the borrower. It is important to ensure that the number listed within the promissory note is accurate and is only the amount loaned. Interest is addressed on its own.
• The amount of interest charged on the loan. Usually, this is listed as either yearly (per annum) or as the APR (annual percentage rate). The highest amount of interest that may be charged in the State of Connecticut is 12%.
• Payment Information. The majority of Connecticut promissory notes are satisfied through installment payments. This is a specific amount of money paid weekly, biweekly, or monthly for a certain amount of time. Those terms and the amount of the payment should be defined within the promissory note. If the lender charges a late fee, the amount of the fee should be listed and when the late fee will be assessed.

Need help handling your finances? A Connecticut power of attorney can give someone you choose the legal authority to help you. Download your Connecticut power of attorney today!

For secured Connecticut promissory notes, identifying information about the collateral should be included. Without this information and a proper title, the court may hold that the promissory note is unsecured.

Promissory notes should also include the following clauses:

• Interest Due in the Event of Default. This clause clarifies the interest rate that the borrower will have to pay if they default.
• Payment Allocation. This explains how the payments received will be split between the principal balance and the interest.
• Prepayment. Prepayment means that the borrower wants to pay off the loan earlier. A prepayment clause explains whether the borrower will be penalized in some way for paying off the loan before the end of the finance period.
• Acceleration. Acceleration allows the lender to demand that the borrower pays off the remaining balance immediately if they violated the terms of the repayment agreement. This clause explains the lender’s right to do that.
• Attorney Fees and Costs. If a dispute occurs over the promissory note, this clause explains how attorney fees and costs will be addressed. The most common ways include the borrower and lender paying their own costs and fees and the borrower paying the lender’s fees and costs if the lender wins the lawsuit.
• Waiver of Presentments. This clause explains to the borrower that the lender does not have to be physically present for payments to be made.
• Severability. The purpose of the clause is to state that if any part of the promissory note is unenforceable, the rest of the note remains in effect.
• Conflicting Terms. This clause is used to explain how conflicting terms will be handled. This is generally done through the creation of an amendment. The amendment clarifies the conflicting terms and governs the agreement.
• Notice. This clause explains whether the lender will provide legal notice to the borrower if the lender sues them for default.
• Governing Law. This clause explains which state will govern the agreement.

A promissory note does not need to be witnessed or notarized in Connecticut. It does need to be signed and dated by the borrower and the lender.

A Sample Connecticut Promissory Note with Examples for Each Step

A Connecticut promissory note can be unsecured or secured. 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 explicitly 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 property.

Both unsecured and secured promissory notes in Connecticut 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 Connecticut 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 of payments, the 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 section provides 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 Connecticut 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 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 Connecticut, both unsecured and secured promissory notes must be signed and dated by the borrower, any co-signer, and the lender. There is no legal requirement for a promissory note to be witnessed or notarized in Connecticut. 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 Connecticut

National Consumer Law Center

Credit Union National Association Guide to State Usury Laws                                                           

Help Center/Federal Student Aid      

CollegeScholarships.org

Connecticut Higher Education Supplemental Loan Authority (CHESLA)                                                             

Connecticut Department of Consumer Protection