Make a Tennessee Promissory Note

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

In Tennessee, interest rates that are documented in writing for promissory notes are calculated by a formula published in the Tennessee Administrative Register. If there is no interest rate documented in writing, the maximum amount of interest is 10% per year.

How to Write a Tennessee Promissory Note

Writing a Tennessee promissory note starts by choosing the right title. If the note is secured, this should be stated in the title of the document. For example, “Secured Tennessee Promissory Note.” If the proper title isn’t given to a secured note, it may not be treated as secured by a court. Next, certain information about the parties and the loan itself is used to create the body of the agreement:

• The date of creation. This is the date that the Tennessee promissory note is created. It is placed directly beneath the title of the document. It is written as month, day, and year. This date, and the date the document is signed, are important. They help show that the borrower promised to repay the loan. They also help establish certain legal deadlines.
• The legal name for each party and their role in the contract. Each party should be identified by their legal name and their role. This includes the co-signer.
• The mailing address for each party. List the full mailing address (including the city/town, state, and zip code) for each party. For secured Tennessee promissory notes, include the physical address for the borrower and any co-signer if it is different from the mailing address. If the lender has a general mailing address and a different mailing address for payments, the general mailing address is listed in this section. The payment address should be listed with the repayment information.
• The amount loaned to the borrower. This is the principal balance without interest added to the amount. Review this number for accuracy before the note is signed.
• The yearly interest rate for the loan. Remember that if an interest rate is not specified within the document, the maximum interest rate is 10% per year. The applicable interest rate can be found on the Tennessee Administrative Register’s website.
• Payment agreement. This section of the Tennessee promissory note explains how the borrower will repay the loan. The lender’s payment address should be listed here. Document the total number of payments that must be made by the borrower, the due date for each payment, and the amount of each payment. If there is a late fee, the amount of the fee and when it is charged should be included here.

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For secured Tennessee promissory notes, include an accurate description of the collateral. This is an important step to protect the lender’s legal right to take the property if the borrower does not comply with the agreement.

Next, clauses are used to create the terms and conditions of the promissory note. There are a lot of different clauses that may be used. Here’s a list of the most used clauses:

• Interest Due in the Event of Default. If the lender will assess a higher interest rate for defaulting on the agreement, that amount is listed in this clause.
• Payment Allocation. An explanation of how the payments made are split between the principal loan and the interest charged.
• Prepayment. An explanation of whether the borrower will face a financial penalty for paying the loan off early.
• Acceleration. An explanation of the lender’s legal right to demand immediate repayment of the outstanding balance if the borrower defaults in some way.
• Attorney Fees and Costs. An explanation of how any incurred attorney fees and costs by either party will be addressed.
• Waiver of Presentments. A statement that explains that there is no requirement for the lender to be physically present at the time payments are made by or on behalf of the borrower.
• Severability. An explanation that if one portion of the Tennessee promissory note is found unenforceable that the rest of the note remains valid.
• Conflicting Terms. An explanation of how any conflicting terms will be resolved.
• Notice. An explanation as to whether the lender will provide some sort of notification to the borrower if they plan to file a lawsuit over the promissory note.
• Governing Law. This clause lists the name of the state whose laws will be used to mediate or litigate disputes related to the promissory note.

In Tennessee, there is no legal requirement to have a promissory note notarized. To make the document into a legal document, a Tennessee promissory note must be signed and dated by the borrower. If there is a co-signer, they should also sign and date the document. If they don’t, they will not be legally responsible if the borrower does not uphold their responsibilities.

A Sample Tennessee Promissory Note with Examples for Each Step

A Tennessee promissory note can be unsecured or secured. A secured promissory note should be titled as such ("Secured Tennessee 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 Tennessee 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 Tennessee state law governing maximum interest/usury rates for written contracts; interest rates recorded in writing within written promissory notes are determined by a formula published in the Tennessee Administrative Register), 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 Tennessee 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 Tennessee, 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 Tennessee. 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 Tennessee

National Consumer Law Center

Credit Union National Association Guide to State Usury Laws                                                          

Help Center/Federal Student Aid      

CollegeScholarships.org

College Pays TN TN Higher Education Commission & Student Assistance Corporation                        

Nashville State Community College