Make a Illinois Promissory Note

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

The maximum amount of interest that may be charged in Illinois is set by usury law. That amount is 9%. Any lender who charges more than the maximum legal interest rate could face legal charges.

How to Write an Illinois Promissory Note

Writing an Illinois promissory note can be quite simple with the use of a template. The first thing to consider is whether the promissory note is secured. If it is, the title should reflect that fact. Otherwise, it can be next to impossible to enforce even through legal remedies. Once the title is established, an Illinois promissory note must address:

• Creation date. This is the date that the Illinois promissory note is created. The date goes beneath the title of the note. It is listed month, day, and year.
• The legal names and mailing addresses of the parties. The parties include the borrower and the lender. Some promissory notes may include a co-signer. Those that do should include the co-signer’s legal name. Mailing addresses are imperative for notices. If the note is secured, the physical address of the borrower should also be listed. If the payment address is different from the lender’s mailing address, the payment address should also be listed. However, it may be good to list the payment address with the other payment information.
• The principal loan amount provided to the borrower. This is the amount of money loaned to the borrower. This section doesn’t include the interest amount because interest is discussed on its own. Before an Illinois promissory note is executed, it is important to make sure that the amount listed here is accurate.
• Interest on the loan. This is the amount of interest that the lender charges the borrower. It is commonly expressed as APR (annual percentage rate) or “per annum” (per year). The lender may not charge more than 9% interest by state law.
• Payment information. Illinois promissory notes are most commonly fulfilled through installments. Installments are payments made on a certain timeline. It could be weekly, bi-weekly, or monthly. The promissory note should mention how many installment payments are required to pay off the balance and how much those payments are. If a late fee will be assessed when a payment is late, the amount of the late fee and when it will be charged. This is also the section where you’d list the payment address.

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If the Illinois promissory note is secured, it is important to identify the collateral involved. Failure to do so could force the court to treat the promissory note as if it is unsecured.

The promissory note should include some basic clauses to explain the terms and conditions:

• Interest Due in the Event of Default. This clause lists the amount of interest that the borrower must pay if they default on the loan.
• Payment Allocation. This clause explains how the money paid is split between the principal balance and interest.
• Prepayment. There are loan agreements where borrowers want to pay off a loan early. A prepayment clause explains whether the borrower will face a penalty by paying off the loan early.
• Acceleration. An acceleration clause gives the lender the right to demand immediate repayment if the borrower defaults on the agreement.
• Attorney Fees and Costs. This clause explains who will pay attorney fees and costs if a legal dispute arises. The parties may be responsible for their own fees and costs. The clause may also state that if the lender sues the borrower and the borrower is found in default, the borrower is responsible for paying the fees and costs incurred by the lender.
• Waiver of Presentments. This clause explains to the borrower that the lender does not have to be physically present for payments to be made as scheduled.
• Severability. This clause states that if any portion of the Illinois promissory note is unenforceable that the entire note isn’t thrown out. Only the unenforceable provision shall not be followed.
• Conflicting Terms. This clause explains that if conflicting terms exist, an amendment will be drafted to clarify the terms and it will govern the note.
• Notice. A notice clause informs the borrower as to whether they’ll be informed if the lender sues because of a default.
• Governing Law. This important clause documents the state that will govern the agreement. If the parties are in different states, this clause is helpful because it determines where any legal dispute may be heard.

An Illinois promissory note must be signed by both the borrower and the lender. If there is a co-signer, they should also sign the note. The signatures should be dated. There is no legal requirement to have note notarized or witnessed.

A Sample Illinois Promissory Note with Examples for Each Step

An Illinois promissory note can be unsecured or secured; Illinois promissory notes are regulated by the Illinois Compiled Statutes - Uniform Commercial Code and Illinois usury law. 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 Illinois 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 Illinois 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 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 Illinois 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 Illinois, 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 Illinois. 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 Illinois

National Consumer Law Center

Credit Union National Association Guide to State Usury Laws                                                          

Help Center/Federal Student Aid      

CollegeScholarships.org

Illinois Student Assistance Commission (ISAC)   

Illinois.gov          

Illinois Attorney General