Make a New Jersey Promissory Note

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

Under New Jersey usury law, the maximum interest that may be charged in a promissory note is 16%. Lenders who charge more than the legal maximum could face serious legal repercussions.

How to Write a New Jersey Promissory Note

When writing a New Jersey promissory note, it is important to give it an appropriate title. If the promissory note is secured, make sure that the word “secured” appears in the title. For example, New Jersey Secured Promissory Note. A proper title is a necessity because, in the event of a legal dispute, an improper title could lead to the note being treated as unsecured by the court. Following the title, certain information is used to outline the scope of the relationship between the parties and the repayment agreement:

• The date of creation for the New Jersey promissory note. This is the date that the parties are entering into the agreement. This date, along with the date of the signatures, is important. They help prove the validity of the agreement and help determine the statute of limitations for future legal action. The dates within the note should be formatted as month, date, and year.
• Identity of each party and their role within the promissory note. The parties are the lender and the borrower. If there is a co-signer, they should also be identified. Use the legal name of the person or entity along with their role. For example, Cash Cars Auto Finance, Inc., Lender.
• The mailing address for each party. In addition, the full mailing address for each party, secured promissory notes should also list the physical address of the borrower and any listed co-signer if it is different from the mailing address. Lenders may have a separate payment address. When this happens, the payment address should be listed with the repayment agreement. This will help ensure that payments sent are received and properly processed without delay.
• The principal amount of the loan. This is the amount borrowed without the interest charged on the loan. Before executing a New Jersey promissory note, review this amount to make sure that it is correct.
• The interest rate. This is the amount of yearly interest charged for the loan. In New Jersey, this may not exceed 16%. The amount of interest may be expressed as yearly interest rate, per annum, or annual percentage rate (APR).
• Payment agreement. This portion of the New Jersey promissory note outlines how the loan provided will be repaid. Include the number of payments that must be made over the life of the loan (generally referred to as installments), the amount of each payment, and when each payment is due. If there is a late fee that is assessed, the amount of the fee as well as when it is added on should be listed. If the lender has a special address for payments, it should be included here.

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If the New Jersey promissory note is secured, including an accurate description of the collateral is important. If there is no description, a legal dispute could cause the court to treat the note as unsecured.

Following the above information, there are certain clauses used to create the terms and conditions that must be followed. Some of the most popular clauses in New Jersey promissory notes are:

• Interest Due in the Event of the Default. This interest rate is what the borrower will pay if they do not comply with the terms of the loan. It is typically higher than the amount of interest initially charged for the loan, but it may not exceed 16%.
• Payment Allocation. This clause documents how payments made by the borrower are split between the principal and the interest.
• Prepayment. This clause states whether the borrower will face a financial penalty for paying the loan off early. Paying the loan off before the end of the agreed-upon term is known as prepayment.
• Acceleration. If the borrower defaults on the promissory note terms, the lender has the legal right to immediately demand full repayment of the outstanding balance.
• Attorney Fees and Costs. In the event of a legal dispute between the lender and the borrower, this clause explains how attorney fees and costs will be handled.
• Waiver of Presentments. There is no legal requirement for the lender to be physically present when the borrower makes a payment.
• Severability. If one portion of the New Jersey promissory note is found to be unenforceable, the rest of the note is still valid.
• Conflicting Terms. If there are conflicting terms, this clause states how those terms will be clarified.
• Notice. Whether the lender will notify the borrower if they plan to sue the borrower for default.
• Governing Law. This is the state whose laws will be followed if there is a legal dispute related to the promissory note.

There is no legal requirement to have a New Jersey promissory note notarized. To execute the note, it must be signed and dated by the borrower and any listed co-signer.

A Sample New Jersey Promissory Note with Examples for Each Step

A New Jersey promissory note can be unsecured or secured. A secured promissory note must be titled as such ("New Jersey Secured Promissory Note"); 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 New Jersey 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 New Jersey 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 clause supplies 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 New Jersey 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 New Jersey, 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 promissory notes to be witnessed or notarized in New Jersey. 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 New Jersey

National Consumer Law Center

Credit Union National Association Guide to State Usury Laws                                                          

Help Center/Federal Student Aid      

CollegeScholarships.org

Higher Education Student Assistance Authority (HESAA)      

New Jersey Education Association (NJEA)  

State of New Jersey Department of Education