Make a Ohio Promissory Note

What Is the Maximum Interest Rate That May Be Charged in Ohio?

The maximum interest that may be charged in Ohio on loans valued at less than $100,000 is 8%. If the loan is over $100,000 or if there are certain types of collateral involved, the interest rate may be higher. To learn more about the exceptions and the legal amount, read OH ST § 1343.01.

How to Write an Ohio Promissory Note

To write an Ohio promissory note, consider whether the note is secured. If it is, make sure the word “secured” is used in the title. For example, Ohio Secured Promissory Note or Secured Ohio Promissory Note. Without acknowledging the fact that the note is secured in the title, a legal dispute may cause the court to hold that the note is unsecured.

After writing the proper title, it’s time to create the scope of the agreement by using some basic information about the parties, the loan and interest, and how repayment will take place:

• List the date the Ohio promissory note is created. This date, along with the date that the agreement is executed, should be formatted as month, day, and year. The dates in the document help prove that it’s a valid agreement between the parties. The dates also help determine specific deadlines for legal action.
• Identifying each party in the agreement as well as their role. Next, list the legal name of each party and their role. This includes any co-signer. For example, Joseph Q. Doe, Borrower.
• List the mailing address for each party. When listing the mailing address, it is important to use the city, state, and zip code. If the note is secured, list the physical address for the borrower and co-signer if it is different from their mailing addresses. For lenders with a mailing address and a payment processing address, list the payment address with the payment terms.
• The amount loaned to the borrower. This is generally referred to as the principal loan amount. It does not include the amount of interest charged for the loan. Interest is addressed separately. Before executing an Ohio promissory note, make sure that this amount is correct.
• The interest rate charged on the loan. This is often expressed as the annual percentage rate (APR), per annum, or yearly interest rate. The maximum amount that may be charged in Ohio for loans less than $100,000 is 8%.
• How the loan will be repaid. The repayment agreement or payment agreement explains how the borrower will repay the loan. This section includes the number of total payments that must be made, the amount of each payment, and the due date for each payment. If a late fee will be charged for late payments, the amount of the late fee and when it is charged should be documented. The payment processing address should also be listed here.

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An Ohio promissory note that is secured should include information about the collateral. If this information is not included, the court could ultimately hold that the note is unsecured and not secured.

Following the basic information, an Ohio promissory note will then have certain clauses. The purpose of the clauses is to create the terms and conditions of the loan. The most commonly used clauses are:

• Interest Due in the Event of Default. This is the interest rate the borrower will be responsible to pay if they default on the agreement. Most Ohio promissory notes start with a lower than the maximum interest rate. The maximum interest rate (or an interest rate higher than the initial interest rate but not exceeding the maximum) is applied if the borrower defaults on the terms of the loan.
• Payment Allocation. How payments made by the borrower will be split between the principal loan amount and the interest.
• Prepayment. If the borrower wants to pay the loan off before the end of the agreed-upon term, they may be subject to a financial penalty. This clause explains whether such a penalty exists.
• Acceleration. The lender has the legal right to demand that the borrower pay the full remaining balance if the borrower does not comply with the terms of the agreement.
• Attorney Fees and Costs. When there is a legal disagreement over the Ohio promissory note, attorney fees and costs may be incurred by one or both parties. This clause explains how those costs and fees will be handled.
• Waiver of Presentments. This clause states that there is no legal requirement for the lender to be physically present when payments are made by the borrower.
• Severability. A severability clause keeps the rest of the agreement valid if one portion of it is found to be unenforceable.
• Conflicting Terms. A clause for conflicting terms explains how those terms will be clarified.
• Notice. Whether the lender will provide the borrower with notice if the lender sues because the borrower defaults on the agreement.
• Governing Law. A governing law clause provides the state whose laws will be followed if there is a disagreement related to the promissory note.

There is no legal requirement in Ohio to have a promissory note notarized. To execute an Ohio promissory note, it must be signed and dated by the borrower. If there is a co-signer, the co-signer must also sign and date the agreement in order to be legally responsible for fulfilling the obligations if the borrower does not.

Instructions to Create an Ohio Promissory Note

An Ohio promissory note can be unsecured or secured. A secured promissory note must be titled as such ("Ohio Secured Promissory Note" or "Secured Ohio 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 Ohio 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 Ohio 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 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 Ohio 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 Ohio, 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 Ohio. 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 Ohio

National Consumer Law Center

Credit Union National Association Guide to State Usury Laws                                                          

Help Center/Federal Student Aid      

CollegeScholarships.org 

U.S. Department of Education   

Dave Yost, Ohio Attorney General

OhioHigherEd Department of Higher Education