Louisiana Promissory Note: What Is It?
A Louisiana promissory note is a written agreement between a lender and a borrower. It documents the amount of money loaned to the borrower as well as explaining the repayment agreement. The parties of a promissory note include the lender and the borrower. There may also be a co-signer. Promissory notes may be secured or unsecured. When a promissory note is secured, the borrower promises to turn over collateral to the lender if the borrower defaults on the agreement. When a promissory note is unsecured, the loan is made without a promise of collateral. Louisiana promissory notes are governed by Article 3 of the Louisiana UCC and in Louisiana Civil Code.
What Is the Maximum Amount of Interest That May Be Charged?
In Louisiana, the maximum amount of interest that may be charged is 12% per year. Lenders who charge more than the Louisiana limit may face serious legal repercussions.
How to Write a Louisiana Promissory Note
A Louisiana promissory note begins by choosing the type of note being created: secured or unsecured. If the promissory note is secured, the title should reflect that. Otherwise, if a lawsuit arises, the court may treat the note as unsecured. After the proper title is created, certain information must be included to outline the scope of the agreement between the parties.
- The date the promissory note was created. This date is listed as month, day, and year. It is listed beneath the title. The date is important because it helps determine the statute of limitations for collections if necessary.
- Identify the parties. Use the legal name for each party as well as their role in the agreement. For example, John Public, Borrower. If there is a co-signer, they should be identified as well. It’s also important to include the mailing address for the parties. For secured Louisiana promissory notes, it is important to list the physical address for both the borrower and the co-signer if it is different from their respective mailing addresses. This could help the lender collect collateral if necessary. If the payment address isn’t the same as the lender’s mailing address, the payment address should be listed with the payment information.
- The principal loan amount provided to the borrower. This amount is listed without interest. Interest is addressed on its own. Before the promissory note is executed, ensure that the amount listed is correct.
- The interest charged on the loan. This is often expressed as “per annum” or “annual percentage rate (APR). The most that may be charged in the State of Louisiana is 12% per year.
- The payment information. The most common payment agreement made for Louisiana promissory notes is an installment plan. An installment is an amount paid at agreed upon intervals. The most common installment plan is a monthly installment. It should the number of installments that will be paid over the life of the loan, when the payments are due, the amount for each payment, and information about any late fee that may be charged (including the amount of the fee).
For secured Louisiana promissory notes, include identifying information for the collateral.
After the basic information is presented, it is important to include some basic clauses. This isn’t a full list of clauses that may be used. It represents the most commonly used clauses:
- Interest Due in the Event of Default. This clause explains the amount of interest that will be charged if the borrower defaults on the agreement.
- Payment Allocation. Payment allocation refers to how payments are split between the principal balance and the interest charged for the loan.
- Acceleration. An acceleration clause explains that if the borrower does not adhere to the terms of the promissory note, the lender may demand immediate repayment on the unpaid portion.
- Attorney Fees and Costs. This clause outlines how attorney fees and costs incurred by one or both parties will be handled if there is a legal dispute related to the promissory note.
- Waiver of Presentments. This clause states that the lender does not have to be physically present for payments to be made by the borrower.
- Severability. This clause states that if one part of the promissory note is found to be unenforceable that the rest of the note will remain in effect.
- Conflicting Terms. This clause provides an explanation as to how any conflicting terms will be resolved. It is usually done by creating an amendment that will govern the agreement.
- Notice. A notice clause explains whether the lender will inform the borrower if they plan to sue the borrower 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.
Depending on the type of Louisiana promissory note being created, it needs to be signed by the borrower (and any co-signer) as well as being signed by a witness.
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