Make a Rhode Island Promissory Note

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

For Rhode Island promissory notes, the maximum amount of interest that may be charged is 21% or an annual rate that is equal to nine percentage points plus the index of the domestic prime rate published in Money Rates, found in The Wall Street Journal, on the last business day of the month.

How to Write a Rhode Island Promissory Note

When writing a Rhode Island promissory note, the first decision is to decide if the note is secured or unsecured. For a secured note to be considered as such by the court if there is a legal dispute, it is important to use the word “secured” in the title. For example, Secured Rhode Island Promissory Note. Following the proper title, use information about the parties and the loan to explain the relationship and the repayment agreement:

• The date the Rhode Island promissory note is created. This date is placed below the title and is written as month, day, and year. This date, as well as the date that the document is signed, plays an important role because it helps validate the fact that the loan was received and that there was a promise to repay. The dates also help establish legal deadlines related to certain activities like filing a lawsuit or collections.
• Identification of each party and the role they have within the agreement. It is extremely important to use the full legal name for each party and their role. This should be done for the lender, the borrower, and any co-signer. For example, Treetop Personal Loans, Ltd., Lender.
• The mailing address for each party. Remember to include the city and town, state, and zip code for each party’s mailing address. If the promissory note is secured, list the physical address for the borrower and the co-signer (if there is one) if that address is different from the listed mailing address(es). For lenders, there may be a mailing address for general contact as well as a mailing address specifically for payments. The primary contact address should be listed here. The payment address should be listed in the section that addresses how the loan will be repaid.
• The amount provided as a loan. This is known as the principal balance. Interest should not be mentioned here because it is addressed in its own section. Before the promissory note is executed, make sure that the amount listed as the principal balance is correct.
• The yearly interest rate. This is the amount of interest charged by the lender. It must not exceed the maximum rate of interest as set by Rhode Island usury law.
• Payment agreement. This section contains information that explains how the loan will be repaid by the borrower. It should include the payment address. It should also list the full number of payments or installments that must be satisfied, the amount of each, and the due dates for the payments. If there is a late fee, the amount of the fee and when it is added to the account should be listed in this section.

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For secured Rhode Island promissory notes, include a description of the collateral. Without a description of the collateral, the lender may have no legal right to collect it.

After the basic information discussed above, clauses are used to outline the terms and conditions of the contract between the parties. There are several clauses that may be used. The most commonly used clauses are:

• Interest Due in the Event of Default. This is the interest rate that will be used if the borrower defaults on the agreement in some way.
• Payment Allocation. This is how the payments made are split between the principal balance and the interest.
• Prepayment. What happens if the borrower pays off the loan before the end of the term. This may result in the borrower having to pay a financial penalty.
• Acceleration. The lender’s legal right to immediately demand the borrower repay the outstanding balance because of non-compliance with the terms of the contract.
• Attorney Fees and Costs. How attorney fees and costs incurred by one or both parties related to the Rhode Island promissory note will be handled.
• Waiver of Presentments. The borrower must still make payments even if the lender isn’t physically present at that time.
• Severability. The remainder of the promissory note stays valid if one portion of the note is found unenforceable as a matter of law.
• Conflicting Terms. This clause explains how any conflicting terms in the agreement will be resolved.
• Notice. Whether or not the borrower will receive some sort of notification from the lender if the lender plans to sue for defaulting on the agreement.
• Governing Law. The name of the state whose laws will be used to handle any dispute arising from the agreement.

Certain types of Rhode Island promissory notes must be notarized when they are signed by the borrower. There is a cap on the amount that a notary may charge for their services when a promissory note is involved. Both the borrower and co-signer should sign and date the promissory note.

A Sample Rhode Island Promissory Note with Examples for Each Step

A Rhode Island promissory note can be unsecured or secured. A secured promissory note must be titled as such ("Secured Rhode Island 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 Rhode Island 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 Rhode Island 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 explains 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 Rhode Island 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 Rhode Island, both unsecured and secured promissory notes should be signed and dated by the borrower and any co-signer; the lender need not sign. Certain types of promissory notes signed by the borrower must be notarized in Rhode Island. Still, even where there is no legal requirement to do so, 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 Rhode Island

National Consumer Law Center

Credit Union National Association Guide to State Usury Laws                                                          

Help Center/Federal Student Aid      

CollegeScholarships.org

Rhode Island Student Loan Authority (RISLA)   

Rhode Island Credit Union   

RI.gov