Make a Washington Promissory Note

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

The maximum amount of interest that may be charged in Washington is 12% per year. If a lender violates usury law, they may face criminal charges brought forth by the state. However, it’s important to note that Washington’s maximum interest rate may change based on the Federal Reserve rate on 26-week treasury bills. Lenders may charge interest at 4% above the Federal Reserve rate or 12%, whichever is higher. If there is no interest rate in writing, the interest rate is 12%.

A Sample Washington Promissory Note with Examples for Each Step

When writing a Washington promissory note, the first step is to create the proper title. Secured promissory notes should have the word “secured” in the title to help protect the lender’s legal rights and interests. Then, certain information is used to write the main body of the contract:

• The date the Washington promissory note was created. The date is included below the title of the document. It is often written as month, day, and year. The creation date and the date that the borrower signs the contract are important. They show that the borrower acknowledges the existence of a loan and that they promise to repay it. The dates also help establish legal deadlines for certain actions.
• The legal name and role of each party to the contract. Use the legal name for each party, including any co-signer. Then, list the role they have in the contract. For example, Marshall P. Jackson, Borrower.
• The full mailing address for each party. A full mailing address is more than just the street address. It must also include the correct city or town, state, and zip code. For secured notes, also include the physical address of the borrower (and any co-signer) if it is different from the mailing address.
• The principal loan amount. This is the amount of money provided by the lender without including interest. Before the document is signed, double-check the number for accuracy.
• The interest rate for the loan. This is the interest rate, expressed as a percentage, that will be charged each year for the loan.
• Payment Agreement. This section explains how the borrower is expected to repay the loan. It includes the full number of payments, the amount of each payment, and the due date for each payment. Late fee amounts should also be documented. If the lender has a separate mailing address for payments, include that address here.

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Secured Washington promissory notes should include a description of the collateral that the lender is entitled to receive if the borrower defaults on the agreement. Without this information, the lender may lose their right to collateral.

Following the main body, clauses are used to create the terms of the agreement. There are multiple clauses that may be used. Below is a partial list of clauses that represent the most commonly used ones:

• Interest Due in the Event of Default. This is the interest rate that will be charged if the borrower defaults on the loan. While it cannot be higher than the maximum legal interest rate, this rate is higher than the original interest rate.
• Payment Allocation. How the payments made are split between the principal balance and the interest.
• Acceleration. An explanation of the lender’s legal right to demand immediate payment of the outstanding balance if the borrower defaults on the terms.
• Prepayment. Prepayment occurs when the borrower pays off the loan before the end of the specified term. This clause explains whether the lender will charge a financial penalty if prepayment occurs.
• Attorney Fees and Costs. How attorney fees and costs incurred by one or both parties because of a disagreement related to the note will be handled.
• Waiver of Presentments. A clause that states the lender isn’t legally required to be present when payments are made on the loan.
• Severability. A severability clause keeps the rest of the note in effect if one portion of it is found to be invalid.
• Conflicting Terms. A clause that explains how conflicting terms will be clarified if they exist.
• Notice. Whether the borrower will receive some sort of notification if the lender is suing because of a default.
• Governing Law. The state whose laws will be used to govern the agreement and any legal dispute arising from it.

A Washington promissory note does not need to be notarized. To execute the note, the borrower should sign and date it. If there is a co-signer, the co-signer should also sign and date the document.

A Sample Washington Promissory Note with Examples for Each Step

A Washington promissory note can be unsecured or secured. A secured promissory should 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 Washington 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 Washington state law governing maximum interest/usury rates for written contracts; in Washington, the maximum interest rate can change based on the Federal Reserve rate on 26-week treasury bills), 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 Washington 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 Washington, both unsecured and secured promissory notes should 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 Washington. 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 Washington

National Consumer Law Center

Credit Union National Association Guide to State Usury Laws                                                          

Help Center/Federal Student Aid       

CollegeScholarships.org 

Washington Student Achievement Council (WSAC)     

Washington State Department of Financial Institutions

University of Washington