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

In Pennsylvania, the maximum interest that may be charged depends on the amount of the loan and whether there is a written agreement. If the amount loaned is less than $50,000, the maximum interest rate that may be charged in Pennsylvania is 6%. For loans greater than $50,000 or if the agreement meets another exception within the state’s usury law, the interest rate may be whatever amount the parties agree to in writing.

How to Write a Pennsylvania Promissory Note

The first decision that must be made when writing a Pennsylvania promissory note is whether it is secured or unsecured. If the agreement is secured, the word “secured” must be used in the title. For example, Secured Pennsylvania Promissory Note. Failure to properly title a secured promissory note may result in a court holding the note as unsecured if there is a disagreement. After the title, some basic information about the parties and the loan is used to create the agreement:

• The date the Pennsylvania promissory note is created. This date is placed below the title. It is written as month, day, and year. This date, and the date the document is signed, is extremely important because it helps to provide the validity of the document between the parties. The dates also help establish legal deadlines for certain types of actions related to the promissory note.
• Identifying the parties and their individual roles within the agreement. Use the legal name of each party regardless of whether they are an individual or an entity. Parties include the lender, the borrower, and sometimes a co-signer. Here’s an example: ABC Car Loans, Inc., Lender; John Q. Doe, Borrower.
• The mailing address for each party. It’s important to use the full address, including the city or town, state, and zip code. For secured promissory notes, the physical address for the borrower and any co-signer should be included if it is different than the mailing address for each. If the lender has a payment mailing address and a general mailing address, the general mailing address should be listed here. The payment address should be listed in the payment agreement for easy reference.
• The principal amount loaned to the borrower. This is the full amount loaned to the borrower. It does not include interest. It is important to make sure that this number is correct before the document is executed and becomes legally binding.
• The yearly interest rate charged for the loan. This is the amount of interest charged by the lender. It is often expressed as per annum or as the annual percentage rate (APR).
• Payment agreement. This section details how the borrower will repay the loan. It includes the number of payments that must be made, the due date for each payment, and the amount of each payment. If the lender charges a late fee for missed or late payments, the amount of the fee should be documented in this section as well as when the lender will charge it to the account. If there is a payment processing address, it should be listed in this section of the promissory note.

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For secured Pennsylvania promissory notes, include a description of the collateral. Without this description, a court might treat the agreement as unsecured if there is a disagreement.

Following the above information to create the agreement, clauses are used to define the terms and conditions of the promissory note. There are several clauses that may be helpful. Some of the most commonly used ones include:

• Interest Due in the Event of Default. Borrowers who do not follow the terms and conditions of the promissory note may be charged a higher interest rate than initially agreed. That amount of interest is listed here, but it should not exceed the state’s maximum interest rate.
• Payment Allocation. This clause explains how the payments made by the borrower will be split between the principal balance and the interest charged.
• Prepayment. If the borrower wants to pay off their loan early, this is known as prepayment. This clause explains whether the borrower will experience a financial penalty for paying off the loan before the end of the term defined in the payment agreement.
• Acceleration. This is the lender’s legal right to demand immediate repayment of the outstanding balance if the borrower does not follow the terms and conditions of the promissory note.
• Attorney Costs and Fees. This clause explains how attorney costs and fees of one or both parties will be handled if there is a legal dispute related to the Pennsylvania promissory note.
• Waiver of Presentments. This clause states that the lender is not legally required to be physically present when the borrower makes payments.
• Severability. A severability clause protects the remainder of the promissory note if one portion of it is found to be unenforceable.
• Conflicting Terms. If the note has conflicting terms, this clause explains how those terms will be clarified.
• Notice. A notice clause states whether the lender will notify the borrower if the lender plans to sue over the agreement.
• Governing Law. This clause documents the state whose laws will be used to litigate or mediate any legal dispute related to the note.

Most Pennsylvania promissory laws do not require a notary. However, promissory notes related to repaying loans for real estate may require notarization. To execute a Pennsylvania promissory note, it should be signed and dated by the borrower and any applicable co-signer.

A Sample Pennsylvania Promissory Note with Examples for Each Step

A Pennsylvania promissory note can be unsecured or secured. A secured promissory note must be titled as such ("Secured Pennsylvania 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 Pennsylvania 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 Pennsylvania state law governing maximum interest/usury rates for written contracts; if the loan is for more than $50,000 or if the agreement meets another exception under Pennsylvania usury law, the parties may agree, in writing, on any rate of interest), 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 be applied 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 Pennsylvania 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 Pennsylvania, 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 Pennsylvania (promissory notes related to real estate may need to be notarized). 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 Pennsylvania

National Consumer Law Center

Credit Union National Association Guide to State Usury Laws                                                          

Help Center/Federal Student Aid      

CollegeScholarships.org

Pennsylvania Higher Education Assistance Agency (PHEAA)

Pennsylvania Department of Education