Washington Promissory Note: What Is It?
A Washington promissory note is a written contract between a borrower and a lender. It documents the existence of a loan and the promise the borrower makes to repay it. When a Washington promissory note is properly written and executed, it may be legally binding for all parties involved. Promissory notes may be secured or unsecured. When a promissory note is secured, the lender is promised certain property, known as collateral, if the borrower defaults on the loan. When a promissory note is unsecured, there is no collateral. All the lender has the assurance of the borrower’s signature for repayment.
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%.
How to Write a Washington Promissory Note
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.
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.
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