Make a North Carolina Promissory Note

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What Is a North Carolina Promissory Note?

A North Carolina promissory note is a contract between a lender and a borrower for the repayment of a loan. In addition to the lender and borrower, there is often a co-signer. Promissory notes are secured or unsecured.

  • A simple example of a secured promissory note is a car loan. If the borrower does not pay as promised or uphold the other terms within the contract, the lender will repossess the vehicle.
  • An unsecured North Carolina promissory note is a promise to repay that is guaranteed by a signature instead of collateral.

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What Is the Maximum Interest Rate That Can Be Charged in North Carolina?

If a North Carolina promissory note is in writing, the parties can contract a rate higher than 8%. Without a written agreement, the maximum interest rate is 8%. If the promissory note is for more than $25,000, consult the Commissioner of Banks, which is published on the 15th of each month, to determine the maximum allowable interest rate.

How to Write a North Carolina Promissory Note

Writing a North Carolina promissory note requires certain information and clauses. However, before that information is included, it is important to provide the proper title. If the promissory note is secured, it should be noted as such in the title. For example, North Carolina Secured Promissory Note. Without the word “secured,” a legal disagreement could result in the note being treated by the court as unsecured. After the title, basic information related to the parties and the loan is inserted to create the scope of the agreement.

  • The date the promissory note was created. This date is placed directly below the title of the document. This date, along with the date of the signature, is important in determining the validity of the contract. Dates are also important in determining the statute of limitations for filing a lawsuit and for collections. Dates should be formatted as month, day, and year.
  • Identify the parties and their roles within the contract. The parties are the lender and the borrower. If there is a co-signer, they should also be identified along with their role. Use the legal name of each party. For example, Donna Lenora Johnson, Co-Signer.
  • List the mailing address for each party. The mailing address should include the city, state, and zip code for each party. If the North Carolina promissory note is secured, also list the physical address of the borrower and the co-signer if it is different from the mailing addresses. For lenders with a separate payment address, this section lists the main mailing address. The payment address should be included with the repayment information.
  • The principal amount provided as a loan. This is the amount of money provided by the lender. It does not include the interest rate. Before the promissory note is signed and dated, this number should be checked for accuracy.
  • The amount of interest charged yearly for the loan. If no interest amount is listed, the state maximum that may be collected is 8%. The parties may agree to a higher interest rate. The amount charged is generally expressed as yearly interest, per annum, or annual percentage rate (APR).
  • Repayment information. This section explains how the borrower will repay the loan they received. It lists the number of payments that must be made, the amount of each payment, and the due date for each payment. The lender’s payment address should be listed here. If there will be a late fee, the amount and when it is assessed should be listed.

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For secured North Carolina promissory notes, it is important to document information about the collateral. This is necessary if there is a legal dispute. It can help ensure that the court treats the note as secured as opposed to unsecured.

Following this information, the promissory note will use clauses to create the terms and conditions of the promissory note and explain key concepts. The most commonly used clauses are:

  • Interest Due in the Event of Default. This clause explains the interest rate that will be charged on the outstanding balance if the borrower does not comply with the terms of the agreement. It may be different from the initial interest rate charged.
  • Payment Allocation. How the payments made by the borrower will be split between the principal balance and the accrued interest.
  • Prepayment. This clause explains whether the borrower will be required to pay additional fees to pay the loan off early.
  • Acceleration. This is the lender’s right to immediately demand payment of the remaining balance when the borrower does not comply with the terms of the promissory note.
  • Attorney Fees and Costs. The purpose of this clause is to explain how attorney fees and costs incurred because of a dispute over the promissory note will be handled.
  • Waiver of Presentments. This clause states that the lender is not legally required to be physically present when payments are made on the loan.
  • Severability. This clause essentially protects the rest of the promissory note and keeps it valid if one part of the note is found to be unenforceable.
  • Conflicting Terms. This clause explains how any conflicting terms will be cleared up.
  • Notice. A notice clause states whether the borrower will be notified if the lender plans to sue them for default.
  • Governing Law. The purpose of this clause is to list the state whose laws will be used to govern the promissory note and any related dispute.

Most North Carolina promissory notes have no legal requirement of notarization. The document should be signed and dated by the borrower. If there is a co-signer, this person should also sign and date the note.

A Sample North Carolina Promissory Note with Examples for Each Step

A North Carolina promissory note can be unsecured or secured. A secured promissory note should be titled as such ("North Carolina 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 North Carolina 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 North Carolina state law governing maximum interest/usury rates for written contracts; in North Carolina, the parties may agree on an interest rate higher than the allowable rate for unwritten agreements, unless the promissory note is for more than $25,000, in which case the maximum allowable interest rate is determined by the Commissioner of Banks), 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 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 North Carolina 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 North Carolina, both unsecured and secured promissory notes should be signed and dated by the borrower and any co-signer; the lender need not sign. There is no legal requirement for most promissory notes to be witnessed or notarized in North Carolina. 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 North Carolina

National Consumer Law Center

Credit Union National Association Guide to State Usury Laws                                                          

Help Center/Federal Student Aid      

CollegeScholarships.org

North Carolina State Education Assistance Authority (NCSEAA) 

NC Assist Loan       

College Foundation of North Carolina       

NC Department of Health and Human Services

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