Vermont Promissory Note: What Is It?
A Vermont promissory note is a written contract between a borrower and a lender. It creates written proof (and a contractual relationship) of a loan that a borrower received and promised to repay according to the terms of the agreement. Vermont promissory notes may be secured or unsecured. A secured promissory note is a loan agreement that promises collateral to the lender if the borrower doesn’t pay as promised. An example is a loan for a vehicle. If the borrower doesn’t repay the loan, the vehicle is repossessed by the lender to satisfy all or some of the loan. With an unsecured loan, there is no collateral.
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 on to the account. If the lender has a mailing address specifically for payments, it should be listed in this section.
If the Vermont promissory note is secured, include an accurate description of the collateral. 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 mentioned as a party in the agreement.
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