Make a New York Promissory Note

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 title it properly. 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 an 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.

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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.

A Sample New York Promissory Note with Examples for Each Step

A New York promissory note can be unsecured or secured. A secured promissory note should be titled as such ("New York 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 York 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 York 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, note the 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: The representations and warranties clause 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 New York 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 York, 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 York. 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 York

National Consumer Law Center

Credit Union National Association Guide to State Usury Laws                                                          

Help Center/Federal Student Aid      

CollegeScholarships.org 

New York State Higher Education Services Corporation

New York State Attorney General         

NYC Consumer Affairs NYC Financial Empowerment Centers