Iowa Promissory Note Form

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Iowa Promissory Note: What Is It?

An Iowa promissory note is a written promise between a borrower and a lender. The lender provides the borrower with a loan. The borrower signs the agreement which is their assurance that they will follow the payment schedule listed in the note. There are two types of Iowa promissory notes: secured and unsecured. A secured promissory note promises the lender something of value if the borrower defaults on the loan. Financing a car is an example of a secured promissory note. If the borrower doesn’t pay as promised, the lender can take possession of the vehicle to compensate for part or all of the outstanding balance. Iowa promissory notes must comply with laws related to contracts and interest.

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

Maximum interest rate for promissory notes is found in Iowa Code 535. This is known as an usury law. In the State of Iowa’s maximum amount of interest that may be legally charged by a lender is 5% per year.

How to Write an Iowa Promissory Note

An Iowa promissory note may be a legally binding agreement. To create the agreement, the first thing to consider is whether the note is secured or unsecured. If the promissory note is secured, it must be titled as such. Without the proper title, the court may not treat the agreement as secured if a legal dispute arises. There is specific information that should be included in an Iowa promissory note that explain the purpose of the agreement:

  • The date the Iowa promissory note was created. This date is formatted as month, day, and year. It is placed below the title of the document.
  • The legal names and mailing addresses of those entering into the agreement. The common parties include a lender and a borrower. There may also be a cosigner. Each party should be identified by their legal name and the role that they have in the agreement. For example, Lee Jacobs, Co-Signer. For secured Iowa promissory notes, it is important to list the physical address of the borrower and any mentioned co-signer. This can be beneficial when it comes to retrieving collateral.
  • The principal amount of the loan. This is the amount that the lender provides to the borrower. It does not include the interest amount. Before signing the promissory note, this amount should be checked to ensure accuracy.
  • The interest charged for the loan. This is the amount that the borrower pays for receiving the loan. In the State of Iowa, interest is capped at 5% per year. If a lender charges more than this, they may face serious legal repercussions.
  • Payment agreement. An Iowa promissory note must include an explanation on how repayment will occur. The most common method is via installments. The most common installment is a monthly payment. The agreement should list how many installments are involved, when they are due (i.e., on the first of every month), and the amount of each installment. If the lender charges a late fee, the amount of the late fee and when it is charged should be included.

If an Iowa promissory note is secured, a description of the collateral must be included as well.

There are some standard clauses that should also be included:

  • Interest Due in the Event of Default. This clause explains how much interest will be charged if the borrower defaults on the loan.
  • Payment Allocation. This clause explains how each installment payment is split between the principal balance and the interest.
  • Prepayment. When a borrower wants to pay off a loan before it is scheduled to end, this is known as prepayment. Some Iowa promissory notes have a prepayment penalty.
  • Acceleration. If the borrower does not comply with the terms and conditions of the loan, this clause gives the lender the power to demand immediate full payment.
  • Attorney Fees and Costs. This clause explains how attorney fees and costs will be handled if a legal dispute arises.
  • Waiver of Presentments. This is an explanation to the borrower that the lender’s physical presence isn’t required for payment to be made.
  • Severability. If any portion of the Iowa promissory note is unenforceable, the remainder of the agreement will still be valid.
  • Conflicting Terms. This clause provides an explanation of how any conflicting terms will be clarified. Generally, it involves the creation of an amendment that clears up the confusion and governs the agreement.
  • Notice. The purpose of this clause is to explain to the borrower whether they will be notified if the lender sues them for default.
  • Governing Law. A governing clause determines the state whose laws will be used to govern the agreement or to resolve any legal conflict.

Most Iowa promissory notes do not need a witness. Most also do not need to be notarized. There are some, such as a mortgage, that must be notarized. The promissory note should be signed by the borrower and any co-signer.

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