Make a Vermont Promissory Note

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

The maximum amount of interest that may be charged in Vermont is 12% per year. Lenders who charge more than the maximum amount may be subject to criminal charges brought forth by the State of Vermont.

How to Write a Vermont Promissory Note

A Vermont promissory note must first have the proper title. This is very important for secured Vermont promissory notes. If the word “secured” isn’t in the title, a legal disagreement may result in a court treating the contract as unsecured. After the title, information about the parties and the loan is used to outline the agreement between the parties:

• The date the Vermont promissory note was written. This date is placed below the title. The most common format for this date is month, day, and year. This date is used to prove when the parties entered into the agreement. The date of the borrower’s signature also helps prove the validity of the agreement. The date of creation and the date of the signature also help create important legal deadlines for certain actions.
• Name each party and list their role. Use the legal name of each individual or entity entering into the promissory note. List their roles as well. If there is a co-signer, their name and role should also be included.
• The mailing address for each party. Don’t forget to include the city or town, state, and zip code for each address. If the promissory note is secured, list the physical address for the borrower (and co-signer) if that address is different from the mailing address.
• The principal amount of the loan. This is the amount of the loan provided without including the interest charged. Because a Vermont promissory note is a legal contract, ensure that this number is accurate before the document is executed.
• The interest rate charged per year. This is the amount of interest charged on the loan. It is a yearly rate and is usually called the per annum or annual percentage rate (APR). The maximum interest rate in Vermont is 12%.
• Payment agreement. This is how the borrower will repay the loan. This section lists the total number of payments that must be provided, the amount of each payment, and the due date for each payment. If the lender charges a late fee, the amount of the fee should be documented as well as when it is tacked onto the account. If the lender has a mailing address specifically for payments, it should be listed in this section.

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If the Vermont promissory note is secured, including an accurate description of the collateral can be important. Failure to list this description may result in the court holding the agreement as unsecured.

Following the main body of the Vermont promissory note, terms and conditions are created by the use of clauses. There are many clauses a lender may use to write a promissory note that protects their interests. The most commonly used clauses are:

• Interest Due In the Event of Default. This is the interest rate that the borrower pays if they default on the agreement. Generally, the initial interest rate is lower and this interest rate is close to or at the state maximum of 12%.
• Payment Allocation. A clause that explains how the payments made are split between the principal balance and the interest accrued.
• Acceleration. A clause that explains the lender’s legal right to demand immediate and full payment of the outstanding balance if the borrower defaults in some way.
• Prepayment. A clause that explains whether the lender will charge a financial penalty if the borrower pays off the loan early.
• Attorney Fees and Costs. A clause that explains how any attorney fees and costs incurred by one or both parties as a result of a Vermont promissory note will be governed. For example, the parties are responsible for their own attorney fees and costs.
• Waiver of Presentments. A clause that explains that there is no legal requirement for the lender to be present when payments are made.
• Severability. A clause that states if one portion of the promissory note is found to be invalid, the remaining provisions are still enforceable.
• Conflicting Terms. A clause that explains how any existing conflicting terms will be clarified. For example, the conflicting terms will be clarified by way of an amendment.
• Notice. Whether the borrower will receive notification that the lender plans to sue because of a default.
• Governing Law. A clause that documents the name of the state whose laws will be followed if a disagreement over the promissory note occurs.

Vermont promissory notes do not need to be signed in front of a notary to be considered valid. However, it must be signed and dated by the borrower and any co-signer who is a party in the agreement.

A Sample Vermont Promissory Note with Examples for Each Step

A Vermont promissory note can be unsecured or secured. A secured promissory note must be titled as such; 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 Vermont 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 Vermont 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 Vermont 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 Vermont, 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 Vermont. 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 Vermont

National Consumer Law Center

Credit Union National Association Guide to State Usury Laws                                                           

Help Center/Federal Student Aid       

CollegeScholarships.org

Vermont Student Assistance Corporation (VSAC)  

Vermont Department of Health

Vermont Federal Credit Union

The University of Vermont (UVM) Larner College of Medicine Office of Primary Care and Area Health Education Centers (AHEC) Program 

Vermont General Assembly