Make a Delaware Promissory Note

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

The maximum interest that may be charged with a Delaware promissory note is set by state law. This law, known as a usury law, states that the maximum interest rate is 5% over the Federal Reserve discount rate.

How to Write a Delaware Promissory Note

The first step to creating a Delaware promissory note is to decide whether it is secured or unsecured. If it is secured, the title should reflect that fact: Secured Delaware Promissory Note. Without the proper title, it could be impossible for the lender to collect the collateral for payment. Delaware promissory notes need the following information:

• The date that the promissory note was created. Beneath the title, the promissory note should list the date it was created. This is formatted as month, day, and year.
• The legal name and the mailing address of the borrower. It is also important to indicate that the person named is the borrower. For example, Anthony Jones, Borrower. If the promissory note is secured, including the physical address could be beneficial if the lender needs to collect the collateral because of non-payment.
• The full legal name and mailing address of the lender. The individual or entity should be notated as the lender. For example, Susan Smith, Lender; Smith Personal Financing LLC, Lender. The mailing address will help the borrower know how to contact the lender via mail if necessary.
• The principal loan amount. This documents the original amount of money that the lender agreed to loan to the borrower. This number is separated from the interest. Interest is addressed on its own. It is vital to ensure that the number listed here is accurate. Always double-check the amount before the document is printed and signed.
• The amount of interest. This is listed either using the term “per annum” or “annual percentage rate (APR).” The most that may be charged with a Delaware promissory note is 5% over the Federal Reserve discount rate.
• Payment information. Most Delaware promissory notes are paid monthly or biweekly. This section should explain how to make payments (weekly, biweekly, or monthly), the amount of the payment, and where the payment should be made. It should also list how many payments the borrower will pay over the life of the loan. Additionally, if the lender charges a late fee, the amount of the late fee and how many days after the payment was missed that the fee will be assessed.

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An important component that must be inserted into secured Delaware promissory notes is identifying information about the collateral that secures the loan. If this isn’t included, the lender may not be able to legally collect the collateral. If the lender sues the borrower for defaulting to try to collect the collateral, the court may decide that the promissory note is actually unsecured because it wasn’t properly drafted.

After the basic information above, the promissory note must include the additional clauses:

• Interest Due in the Event of Default. This clause explains how interest will be charged if the borrower defaults on the loan.
• Payment Allocation. This clause explains how the payments received will be split between the principal balance and the interest. For example, 45% of the payment is applied to the balance and 55% is applied to the interest.
• Prepayment. When a borrower prepays a loan, it means that the borrower pays it off before the promissory note’s expected date of completion. Sometimes, Delaware promissory notes punish a borrower for paying off the loan early. While it’s not a requirement, the purpose behind doing so is to help the lender make up for what they may lose in financing charges.
• Acceleration. An acceleration clause gives the lender the right to insist that the borrower pay the full balance of the loan if they do not adhere to the terms of the agreement in some way.
• Attorney Fees and Costs. If a dispute arises from the Delaware promissory note, this clause is used to explain how the attorney fees and costs will be split between the borrower and the lender. The two most common arrangements include the two parties paying their own expenses and the borrower paying for the lender’s expenses if the borrower is found to be in default by the court.
• Waiver of Presentments. This clause states that the lender does not have to be physically present to accept payments from the borrower.
• Severability. This clause states that if any part of the Delaware promissory note cannot be enforced, the rest of the agreement is not thrown out.
• Conflicting Terms. A clause for conflicting terms explains that if the promissory note has any terms that conflict with each other, an amendment will resolve the conflict and govern the agreement.
• Notice. The purpose of this clause is to inform the borrower of how they will receive any notice if the lender decides to sue for defaulting on the loan.
• Governing Law. This clause explains which state will govern the agreement.

A Delaware promissory note should be dated and signed by both the lender and the borrower. While there is no legal requirement to have the promissory note witnessed or notarized, one may find this helpful when dealing with a secured promissory note.

A Sample Delaware Promissory Note with Examples for Each Step

A Delaware promissory note can be unsecured or secured. A secured promissory note should 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 Delaware 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 Delaware 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 apply 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 explains the facts and protections provided 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 default and the interest due upon default (as allowed by applicable Delaware 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 Delaware, 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 Delaware. 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 Delaware

National Consumer Law Center

Credit Union National Association Guide to State Usury Laws                                                          

Help Center/Federal Student Aid      

CollegeScholarships.org

Delaware State Loan Repayment Program (SLRP)