Make a Hawaii Promissory Note

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

Interest may be charged on Hawaii promissory notes. Hawaii Revised Statutes 478:2 state that the most interest that a lender may charge is 10%. If a lender charges a borrower more than the legal maximum, they violate usury laws. This could cause the lender to face serious legal problems. Not only might the borrower sue, but the State of Hawaii may also get involved.

How to Write a Hawaii Promissory Note

To write a Hawaii promissory note, the first step that must be taken is to determine whether it is secured or unsecured. If it’s a secured note, it should be titled as such. Otherwise, it can be next to impossible for the lender to collect the collateral if necessary. Following the title, a Hawaii promissory note should include the following information:

• The date of creation. The date the promissory note is created should appear beneath the title of the note. This should be formatted as month, day, and year. It may be abbreviated (01/01/18) or spelled out (January 1, 2018).
• The legal name and mailing address for the borrower. The Hawaii promissory note should also put the word “borrower” next to their name. If the promissory note is secured, include the physical address if it is different from the mailing address.
• The legal name and mailing address for the lender. The lender may be an individual or an entity. The name of the lender should also include their title as the lender. Also, if the payment address is different from the mailing address, it is important to include the payment address in the document where payment arrangements are discussed.
• The principal amount loaned to the borrower. This is the full amount of money loaned to the borrower. This section does not include what will be paid as interest. Interest is addressed on its own. Before the signing process begins, review the note to ensure that there is no typo in this area.
• The interest amount on the loan. This is the amount of money the borrower agrees to pay in exchange for the loan. It is often addressed as either “per annum” or as “APR” (annual percentage rate). The most interest that may be charged in Hawaii with a promissory note is 10%.
• How payments will be made. The most common type of payment arrangement for Hawaii promissory notes is paying in installments. An installment is a payment made on a certain schedule (weekly, biweekly, or even monthly). The payment amount is generally set at the beginning of the agreement and is documented within the note. The promissory note should list how many installments must be paid as well as the amount of each payment and the total amount of what will be paid. If the lender charges a late fee, the amount of the fee and when it will be assessed should be included.

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For secured Hawaii promissory notes, it is important to include a description of the collateral that may be retrieved if the borrower neglects to fulfill their obligations.

After the basic information, there are some clauses that should be included. These clauses explain the terms and conditions of the agreement:

• Interest Due in the Event of Default. This clause explains the amount of interest that must be paid by the borrower if they default on the arrangement.
• Payment Allocation. Payments made by the borrower are split between the balance and the interest. This clause shows how much of each payment is put toward the balance and how much is put toward interest.
• Prepayment. Prepayment is a term used to describe payments that are made before they are due. This clause explains how those payments apply and whether the borrower will be penalized for paying off the loan early.
• Acceleration. This clause tells the borrower that if they do not uphold their obligations as promised by their signature, the lender has the right to demand that they pay the loan in full.
• Attorney Fees and Costs. If there is a legal dispute over the Hawaii promissory note, this clause explains how attorney fees and costs will be handled. The most common arrangements include the parties paying their own costs and fees or for the borrower to pay the lender’s costs and fees if the borrower is found to be in default by the court.
• Waiver of Presentments. This clause explains to the borrower that they are required to make payments as agreed, even if the lender isn’t physically present at the time the payment is due.
• Severability. This clause explains that if part of the promissory note is found to be invalid, the rest of the document will remain in effect.
• Conflicting Terms. This clause states that if conflicting terms are found in the promissory note, an amendment will be drafted to clarify the conflict and to govern the agreement.
• Notice. This clause acts as an explanation of whether the lender will notify the borrower if they plan to sue for default.
• Governing Law. This clause determines the state that will govern the agreement. This is particularly important if the parties to the note are in different states.

A Hawaii promissory note needs the signature (and printed name) of the borrower and the date it was signed. There is no legal requirement to have the lender or witnesses sign. There is also no legal requirement to have it notarized.

A Sample Hawaii Promissory Note with Examples for Each Step

A Hawaii 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 Hawaii 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 Hawaii 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 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 Hawaii 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 Hawaii, both unsecured and secured promissory notes must be signed and dated by the borrower and any co-signer; the lender need not sign. There is no legal requirement for a promissory note to be witnessed or notarized in Hawaii. 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 Hawaii

National Consumer Law Center

Credit Union National Association Guide to State Usury Laws                                                          

Help Center/Federal Student Aid      

CollegeScholarships.org

Hawaii Federal Credit Union 

Hawaii State Loan Repayment Program (HSLRP)