The Basic Details to Know About Promissory Note in California
Not many people know this, but you should formalize the transaction through a standard promissory note when you borrow money from a friend or lending institution.
In California, for instance, a general promissory note seals the dealing when lending or borrowing a significant amount of money. Therefore, the document acts as the first reference should any issues arise regarding the loan repayment.Read on to understand the laws about a California promissory note and when you need it.
What Is a California Promissory Note?
A California promissory note agreement is a legally binding document explaining the agreement between a lender and the borrower. Once signed, the document proves that you received a loan from the lender.
Typically, a basic promissory note describes the following:
- The borrower
- The amount you borrowed
- Obligation to pay back as specified
- The interest rate for repayment
The California Civil Code regulates the formation and validity of standard promissory notes in the state. According to Section 1624(a) of the code, if you borrow or lend more than $500 or the repayment period exceeds one year, the transaction is an official contract and should be in writing.
Types of Promissory Notes Contract in California
California allows parties to specify the contract as either secured or unsecured like other states.
If you opt for a secured promissory note contract, you’ll give the lender the collateral you specified if you can’t pay the loan. The collateral may include valued assets such as real estate, automobiles, and jewelry.
On the other hand, an unsecured promissory note without collateral doesn’t allow your lender to claim any of your property. That doesn’t mean the lender cannot reclaim the borrowed funds. Instead, the lender can seek redress in a court of small claims or share your details with a credit bureau.
How Much Interest Will You Pay on a Basic Promissory Note?
The California Usury Laws outline the maximum rates a lender may charge as interest. Under article VI, section 1 of the constitution, interest rates vary from 5% to 10% for consumer loans. The rates depend on factors such as reasons for borrowing the loan. However California passes new rules in 2019 that restricts personal loan interest rate at 36% on consumer loans of $2,500-$10,000.
When Do You Need a California Promissory Note Agreement?
A promissory note is a perfect substitute for a loan agreement between you and the lender. However, it depends on your relationship with the lender, the type of loan, and its repayment structure.
A commercial promissory note is simple and easy to use, with flexible repayment terms, unlike a loan agreement. It works best when you have a loan with a fixed monthly payment, as you won’t have to make frequent adjustments. You can use a simple template that outlines a straightforward repayment plan to prevent complexity.
How to Write a Quick Promissory Note in California?
Before filling out a promissory note template, you should name the title “Secured Promissory Note” or “Unsecured promissory Note.”
Afterward, you can write the agreement in six simple steps as follows:
- Start with a suitable template that matches your preferred needs and fill the start date as the month, day, and year
- Write your legal name (borrower) and mailing address. If you are signing a secured agreement, include your physical address too. In addition, write the legal name of the lender and the borrowed amount in US dollars
- Write the interest rate for the loan in words and numbers
- Determine the payment structure, including installment options and how much you should pay in each installment. If your lender charges a fee for late payment, you should also include it in the promissory note
- Review all the relevant clauses to ensure you gratify the legal requirements
- The lender and borrower should append their signatures to acknowledge the agreement
Are you a resident of California wondering where to get a simple promissory note example? Download from this website a free PDF or Word document of the California promissory note today