Georgia Promissory Note: What Is It?
A Georgia promissory note is a written promise to repay a loan. The parties to the loan are the borrower (the person receiving the loan) and the lender (the person or entity giving the loan). The borrower promises to repay the loan in installments. Georgia promissory notes may be secured or unsecured. When a promissory note is secured, the borrower is promising some sort of collateral to the lender if they do not repay the loan. With an unsecured promissory note, the lender may not take possession of any item belonging to the borrower if the borrower defaults on the loan. Georgia promissory notes are subject to the laws set forth by the State or Georgia related to contracts, collections, and interest rates charged on loans.
What Is the Maximum Amount of Interest That May Be Charged?
Each state has an usury law that determines the maximum amount of tax that may be charged on a loan. Georgia law states that interest rates may not be higher than 7% per year if the promissory note does not list an interest rate. Additionally, if the amount loaned is less than $3,000, the lender may not charge more than 16% interest. For loans greater than $250,000, lender may charge any interest rate they wish as long as it is in writing as part of the promissory note. There is a specific clause placed within a Georgia promissory note that can be used to explain the amount of interest being charged.
How to Write a Georgia Promissory Note
The first step to create a Georgia promissory note is to determine whether it is secured. If it is, the title should reflect it: Secured Georgia Promissory Note. Without a proper title, it can make the litigation process more difficult if the lender needs to collect the collateral promised. Moving forward, some basic information is required:
- The date the parties enter into the promissory note. This date is found underneath the title of the promissory note. It is formatted as month, day, and year.
- The legal name of the borrower and their mailing address. The borrower may also be called the promisor in a Georgia promissory note. It is beneficial to identify the borrower or promisor as such. For example: Susan Jones, Borrower. The mailing address may be used for notices or even mailing receipts after a payment is received.
- The legal name of the lender and their mailing address. The individual or entity making the loan should be identified. For example: Pandora Jones, Lender; Pandora’s Loan Service, LLC.
- The amount of the principal. This is the amount borrowed and does not include interest. Before printing and signing a Georgia promissory note, ensure that this number is accurate.
- Interest charged on the loan. If the amount of interest is not preserved in writing, the most that may be charged is 7% per year. When putting the amount in writing, the amount of money loaned is a consideration. For loans less than $3,000, the lender may not charge more than 16% interest. If the loan is greater than $250,000, the lender may charge any interest rate they want. The key here is for the lender to remember that they must put the interest rate in writing.
- Payment explanation. Loans documented in a Georgia promissory note are most often paid in installments. The promissory note should explain how often the installments are due (for example, monthly), how much should be paid for each installment, and how many payments must be made in total. If the lender charges a late fee, the amount of the late fee should be documented as well as when the late fee will be assessed.
For secured Georgia promissory notes, it’s imperative to also include descriptive information about the collateral. Without it, a court may treat the promissory note as unsecured.
Georgia promissory notes include specific clauses that explain the conditions of the agreement. These include:
- Interest Due in the Event of Default. In some promissory notes, an interest rate may be relatively low unless or until the borrower defaults on a payment. Then, the interest rate may increase. This clause explains the interest rate that will be charged if the borrower defaults.
- Payment Allocation. It’s important to explain the promissory note how the payments are split between the principal loan balance and the interest.
- Prepayment. Prepayment is a term that means the borrower or promisor is paying off the loan before the end of the financing term. Some Georgia promissory notes include a prepayment penalty. This is an amount that must be paid by the borrower if they pay the loan off early.
- Acceleration. If the borrower does not comply with the terms of the promissory note, the lender has the right to demand full payment on the remaining balance.
- Attorney Fees and Costs. When a legal disagreement occurs over the promissory note, this clause is used to explain who will pay for attorney fees and costs. Sometimes, the arrangement is that the parties pay their own costs. It is also common for this clause to state that if the lender sues because of default and receives a court judgment, the borrower will be responsible for paying the lender’s attorney fees and costs.
- Waiver of Presentments. The borrower must make their payments even if the lender isn’t physically present at the time the payment is made.
- Severability. If one part of the Georgia promissory note is found to be unenforceable, the rest of the document will remain in effect.
- Conflicting Terms. This clause explains that if conflicting terms exist within the promissory note, an amendment will be created to clarify the conflict and to govern the promissory note.
- Notice. An explanation on whether the lender will inform the borrower if they plan to sue the borrower for being in default of the note.
- Governing Law. This explanation determines which state will govern the agreement. This is important particularly if one party is in Georgia and the other party is in another state.
A Georgia promissory note must be signed and dated by the borrower and a witness. It should also be notarized.
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