Tennessee Promissory Note: What Is It?
A Tennessee promissory note is a written contract to repay a loan. The parties of a promissory note are the borrower, the lender, and (from time to time) a co-signer. Tennessee promissory notes are either secured or unsecured. A secured promissory note involves collateral. If the borrower does not repay the loan as promised in the agreement, the lender has the legal right to take possession of the collateral described in the document. An example of a secured promissory note is a loan for a vehicle. The borrower promises to repay the loan they received to purchase a vehicle. If they do not, the lender takes the vehicle. An unsecured promissory note does not have a promise of collateral.
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 are 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.
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.
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