Make a Kentucky Promissory Note

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

The maximum amount of interest that may be charged in the State of Kentucky is 8%. However, there are multiple exceptions to this rate of interest. You can learn more about exceptions by either reading Kentucky Revised Statute Chapter 360 or speak with a lawyer.

How to Write a Kentucky Promissory Note

A Kentucky promissory note should start by using a title that explains whether it is secured or unsecured. If it is secured, the word should be used in the title. Without it, a legal dispute may result in the court treating the promissory note as unsecured. Then, certain information should be included to create the scope of the document:

• The creation date of the promissory note. Formatted as month, day, and year, the date of creation is placed below the title. The date is important because it impacts how long the lender would have to collect on the agreement if the borrower defaults.
• Identification of the parties. This includes the legal name of each party. They should also have their role identified. Co-signers, if there are any, should also be identified. For example, Jorge Medina, Co-Signer. It’s also important to list the mailing address of each party. If the note is secured, the physical address of the borrower and any co-signer should be listed. If the lender’s payment address is different from the mailing address, the payment address should be listed along with other payment information.
• The principal amount of the loan provided. This is the amount that the lender provides. It does not include the interest amount. Before the Kentucky promissory note is executed, review the amount listed for accuracy.
• Interest charged by the lender. This is the amount of interest charged by the lender. The maximum interest rate in Kentucky is 8% per year, although there are some exceptions.
• The payment agreement. Most Kentucky promissory notes rely on payment installments. The agreement should list the number of installments that will be made during the course of the loan, when they are due, how much is paid for each installment, and whether there is a late fee. If there is a late fee, the amount of the fee should be listed and when it will be assessed if the payment is not received.

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Kentucky promissory notes that are secured should also give an accurate description of the collateral that will be collected if the borrower defaults.

After this information, the Kentucky promissory note should include some basic clauses. The most common ones used include:

• Interest Due in the Event of Default. This clause explains how much interest the borrower will pay if they default on the loan.
• Payment Allocation. This clause explains how the received payments are split between the principal balance and the interest on the loan.
• Prepayment. If a borrower pays off a loan before it’s scheduled to end, this is known as prepayment. A prepayment clause explains whether the borrower will be financially penalized for prepayment.
• Acceleration. If the borrower violates the Kentucky promissory note in some way, this clause allows the lender to demand immediate payment in full.
• Attorney Fees and Costs. This clause explains how attorney fees and costs will be handled if there is a legal dispute between the parties that result from the agreement.
• Waiver or Presentments. This clause states that the borrower is required to make payments even if the lender isn’t physically present.
• Severability. This clause keeps the rest of the promissory note in effect if one area of it is found to be unenforceable.
• Conflicting Terms. This clause addresses how conflicting terms in the promissory note will be handled. The most common way of handling them is by creating an amendment that clears up the confusion and governs the agreement.
• Notice. A notice clause informs the borrower whether the lender will notify them if they plan to sue for default.
• Governing Law. A governing law clause lists the state whose laws will be used to govern the agreement and any legal dispute that arises from it.

For most Kentucky promissory notes, there is no legal requirement to have the document witnessed or notarized. The borrower and any applicable co-signer should both sign and date the document.

A Sample Kentucky Promissory Note with Examples for Each Step

A Kentucky promissory note can be unsecured or secured; promissory notes in Kentucky are regulated by common law and statute. 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 Kentucky 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 Kentucky 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/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 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 Kentucky 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 Kentucky, 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 Kentucky. 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 Kentucky

National Consumer Law Center

Credit Union National Association Guide to State Usury Laws                                                          

Help Center/Federal Student Aid      

CollegeScholarships.org 

KHECORP: Kentucky Higher Education Assistance Authority (KHEAA)/Kentucky Higher Education Student Loan Corporation (KHESLC)/Asset Resolution Corporation (ARC)   

Kentucky Department of Education

Kentucky State Loan Repayment Program (KSLRP)