New York Promissory Note: What Is It?
A New York promissory note is a legal contract between a lender and a borrower that relates to a loan. The note explains the terms of the agreement between the parties. A New York promissory note is either secured or unsecured. A secured promissory note means that the lender has the legal right to collect collateral if the borrower does not comply with the terms of the agreement. An unsecured promissory note is basically a signature loan. There is no collateral collected if the borrower doesn’t fulfill their obligations.
What Is the Maximum Interest Rate That May Be Charged?
For personal loans under $250,000, the maximum interest rate that may be charged in a New York promissory note is 16%. If a lender is found to charge or receive an interest rate of 25% or more, it is a criminal act.
How to Write a New York Promissory Note
The first step to take to write a New York promissory note is to properly title it. If the note is secured, it should state that in the title. For example, New York Secured Promissory Note. If the title does not include the word “secured,” a court may hold that the agreement is unsecured. After the title, certain basic information is used to create the basics of the agreement:
- The creation date of the New York promissory note. This date appears below the title. Along with the date of the signature, the creation date is very important because it helps show that the note is valid. It also helps determine the deadlines for certain legal activities.
- Identifying information for each party as well as their role in the agreement. The parties to the agreement are the lender and the borrower. Sometimes, there is a co-signer. Each should be identified by their legal name as well as their role in the agreement. For example, William Samuel Jones, Borrower.
- The mailing address for each party. The mailing address for each listed party should be included. It should include the city, state, and zip code. If the New York promissory note is secured, make sure to include the physical address for the borrower and co-signer if it is different from the mailing address. For lenders with a separate payment address, make sure that the payment address is listed with the repayment information.
- The principal amount of the loan. This is the amount provided by the lender without including the interest. It is important to make sure that this number is accurate.
- The yearly amount of interest charged. In New York, personal loans under $250,000 have a maximum interest rate of 16%. The amount of interest charged should be listed as annual interest, per annum, yearly interest, or annual percentage rate (APR).
- How the loan will be repaid. This section should list the number of payments that must be made to repay the entire loan, the amount of each payment, and the due date for each payment. If the lender charges a late fee for untimely payments, the amount of the fee and when it is charged should be documented. If the lender has a specific payment address, it should be listed here.
For secured New York promissory notes, it is imperative to include a description of the collateral. Lack of a description can cause a court to treat the note as unsecured if there is a legal dispute.
Following the above information, clauses are used to create the terms and conditions of the loan. The most commonly used clauses for New York promissory notes are:
- Interest Due in the Event of Default. The interest rate for default may be different from the interest rate initially agreed to when the parties entered into the agreement. However, it may not exceed the state maximum.
- Payment Allocation. An explanation of how the payments are split between the principal loan and the interest on the loan.
- Prepayment. This clause explains whether the borrower will be required to pay a financial penalty for paying off the loan earlier than expected.
- Acceleration. The lender’s legal right to demand immediate and full repayment of the outstanding balance if the borrower does not comply with the terms of the loan.
- Attorney Fees and Costs. How attorney fees and costs will be handled if the parties have a legal dispute related to the New York promissory note.
- Waiver of Presentments. There is no legal requirement for the lender to be physically present when the borrower makes their payment.
- Severability. This clause keeps the remainder of the promissory note in effect if one portion of it is found to be invalid for some reason.
- Conflicting Terms. This clause explains that if there are conflicting terms, those terms will be clarified in writing for the parties.
- Notice. A notice clause states whether the lender will notify the borrower if they plan to sue because the borrower defaults.
- Governing Law. The state whose laws will be used if there is a legal dispute over the promissory note.
A New York promissory note does not need to be notarized. To execute the document, it must be signed and dated by the borrower. If there is a co-signer, they must also sign and date the promissory note.
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