Make a Virginia Promissory Note

What Is a Maximum Amount of Interest That May Be Charged in Virginia?

The maximum interest that may be charged in Virginia is 12% if the agreement to repay is in writing.

How to Write a Virginia Promissory Note

When writing a Virginia promissory note, it’s important to title it correctly. If the intent is to write a secured Virginia promissory note, the word “secured” should be used in the title. For instance, Secured Virginia Promissory Note. Without a proper title, a court may determine that the agreement is unsecured if there is a legal dispute over the document.

After the title, use information about the parties and the loan to create the body of the promissory note:

• The date the Virginia promissory note was created. This date is found under the title. It is most often written as month, day, and year. This date, and the date the document is signed, is important because it helps show when the borrower entered into the agreement to repay the loan. It also helps establish certain legal deadlines.
• Each party’s legal name and its role in the contract. The parties to the agreement are, primarily, the lender and the borrower. A co-signer may also be a party to the contract. If there is a co-signer, they should be listed and have their role stated. Identify each party by their legal name and their role. For example, Cat-Dog Auto Finance, Inc., Lender.
• Each party’s full mailing address. A full mailing address, including the city/town, state, and zip code. If the promissory note is secured, it should include the borrower’s physical address if it is different than the mailing address. If there is a co-signer and the note is secured, the co-signer’s physical address should also be documented if it is different from the mailing address. The lender’s main mailing should also be listed here.
• The principal loan amount. This is the amount of money provided by the lender. It does not include the interest charged for the loan. Before this document is signed, this amount should be checked for accuracy.
• The yearly interest rate. This is the amount charged by the lender for the loan. It is expressed as a yearly figure. The most common words used are per annum or annual percentage rate. In Virginia, the highest interest rate that may be charged legally is 12%.
• Payment agreement. This section documents the total number of payments that must be made by the borrower, the amount of each payment, and the due date for each payment. If the lender charges a late fee, the fee amount should be documented along with when the fee is charged. The lender’s payment processing address should be listed if the lender accepts payments via mail.

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If the Virginia promissory note is secured, the note should include a description of the collateral the lender is entitled to if the borrower defaults on the agreement. Without this description, the lender’s right to the collateral may not be supported by the court.

After the body of the contract, clauses are used to create the terms and conditions. There are many clauses to choose from that can help lenders protect their interests. The most common clauses are:

• Interest Due in the Event of Default. This is the interest rate that the borrower will be subjected to if they default on the agreement. It is often much higher than the initial interest rate, but it may not exceed the state maximum.
• Payment Allocation. This clause explains how payments received are split between the principal interest and the interest.
• Acceleration. The purpose of this clause is to explain the lender’s right to demand immediate and full repayment of the balance because the borrower defaults on the terms of the agreement.
• Prepayment. A prepayment clause states whether the lender will charge a financial penalty if the borrower pays off the loan early.
• Attorney Fees and Costs. This clause governs how any incurred attorney fees and costs will be handled for either or both parties related to the Virginia promissory note.
• Waiver of Presentments. This clause explains that the lender does not have to be physically present when payments are made.
• Severability. A clause that states if one part of the note isn’t valid, the rest of the note will remain in effect.
• Conflicting Terms. A clause that explains how any conflicting terms in the promissory note will be handled to bring clarity.
• Notice. An explanation as to whether the lender will provide the borrower with notice if they plan to file a lawsuit because of a default.
• Governing Law. This clause provides the name of the state whose laws will govern the agreement and any dispute related to it.

Most Virginia promissory notes do not need to be notarized. If the promissory note involves real estate, it must be executed in front of a notary. The borrower must sign and date the promissory note to make it legally binding. If a co-signer is involved, they must sign and date the document to be held legally responsible if the borrower defaults.

A Sample Virginia Promissory Note with Examples for Each Step

A Virginia promissory note can be unsecured or secured. A secured promissory should be titled as such ("Secured Virginia 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 Virginia 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 Virginia 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 Virginia 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 Virginia, 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 most promissory notes to be witnessed or notarized in Virginia (promissory notes related to real estate must be notarized). 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 Virginia

National Consumer Law Center

Credit Union National Association Guide to State Usury Laws                                                          

Help Center/Federal Student Aid      

CollegeScholarships.org

State Council of Higher Education for Virginia (SCHEV)     

Virginia Department of Health (VDH)