Texas Promissory Note: What Borrowers and Lenders Should Understand

Many states across America recognize the use of financial instruments to seal the deal while lending and borrowing money.

One such document in Texas is a promissory note created and signed by the lender and borrower. So, if you’re planning to borrow or lend money, you should have a promissory note.

Here are the details about Texas promissory note and the crucial information to include when drafting it.

What Is a Texas Promissory Note?

A Texas promissory letter is a valid contract written and signed between two people: lender and borrower. The lender offers the loan, while the borrower agrees to reimburse within the terms contained in the contract.

In Texas, a cosigner also forms part of the promissory contract, agreeing to repay the loan if the borrower doesn’t honor the agreement.

Texas has two main promissory contracts similar to other states: secured and unsecured.

A Texas Secured Promissory Note contains a written agreement alongside a valuable asset as security. Therefore, the lender has a guarantee of reimbursement if the borrower can’t fulfill the legal obligation for the loan.

However, a Texas Unsecured Promissory Note offers no valuable asset for collateral. As a result, the lender bears a higher risk of losing the money if the borrower fails to meet the expected obligation.

What Is the Maximum Interest Rate for a Texas Promissory Note?

The interest rates in Texas are subject to Title 4 of the Texas Statutes, which regulate loans, interest rates, and other financial transactions.

Under Section 302, Title 4 of the statutes, interest rates depend on whether you write your agreement in writing or not. If you don’t address your interest in writing, you may only charge a maximum rate of 6% per year. On the other hand, it shouldn’t exceed 18% per annum if you have an agreed written rate.

What You Should Know When Writing a Texas Promissory Note

The first step to write a promissory note is downloading the appropriate template that fits your needs. You can find free printable templates here at this website for any US state. Ensure you label your form appropriately to distinguish secured from unsecured contracts. Afterward, you'll need to manually fill out the relevant information on the form.

Below are the most critical aspects of filling out the form:

The Date of Drafting

Enter the date of starting the contract to help you determine essential deadlines such as the maturity period, the start of monthly installments and the due date.

Identify the Parties

Write the legal names of the lender and borrower, followed by their respective roles in the contract.

Write the Mailing Addresses of the Parties

Write the complete mailing addresses of the parties to the contract, including the lender, borrower and cosigner. Under the Texas statutes, you should also include the borrower’s physical address to collect the security item whenever necessary.

Write the Principal Loan Amount

Include the Interest Rate

Write the interest rate per annum, applicable for the promissory note. As a requirement, the interest rate shouldn’t exceed the maximum usury rates.

Include the Payment Information

The payment section is a critical component of the Texas promissory note. Generally, it highlights the number of installments, the amount of each and their respective due dates. If the lender has a payment address, include it in this section.

Sign the Contract

A valid promissory note in Texas contains the borrowers' signature and other witnesses such as cosigners.

A Texas promissory note is an essential component in a financial transaction. You can download a promissory template online without the stress of contacting an attorney. From this website, download a printable promissory note as per Texas state laws.