Contracts are designed to safeguard the rights and duties of the parties. As a result, in any transactional circumstance, parties are encouraged to create written agreements outlining their obligations, expectations, and rights. A promissory note serves this exact purpose, specifically in debt situations. When two parties have a simple monetary exchange in which one party lends money to the other (the borrower), a legal agreement should exist that defines the rights and obligations of both parties.
This article will address the notion of promissory notes and some of its relevant factors. Ohio business owners and other individuals can, therefore, learn about Ohio promissory notes, including the standard features that must exist in a valid promissory agreement and how to draft them.
What is a Promissory Note (Ohio).
A promissory note is a legal document that specifies the terms of a loan and binds a borrower to repay a certain amount of money to a lender within a given timeframe. An Ohio promissory note, when properly executed, is a legally binding contract between a borrower and a lender. The basis of the contract is that the lender provides a loan and the borrower agrees to repay it. In Ohio, promissory notes are controlled by State law.
Like other types of transactions, Ohio promissory notes have two parties. The first party is the lender, who has made a loan and wants repayment within an agreed period. The borrower is the second party, who has been loaned a certain sum by the lender and is agreeing to return the loan through the promissory note. The loan is returned in accordance with the terms and circumstances agreed upon by the parties. The repayment date, the original loan amount, and the payment schedule/installment schedule are frequently included in a promissory note.
Before adopting and editing just any promissory note template, Ohio borrowers and lenders must ensure that they fully understand the purpose of each aspect of promissory notes. A proper understanding reduces the likelihood of making mistakes that may affect the credibility of the agreement. Let’s have a look at some of these features below:
What should be Included in a Promissory Note (Ohio)
While preparing an Ohio promissory note, certain features, which are crucial to the authenticity of the document, must be included. Regardless of whether you obtained your sample through a quick pdf download or otherwise, it is critical to ensure that the vital features are included in the final form of your promissory note, particularly before signing. You never know what may prevent you from having legal issues in the future.
Some of these characteristics are summarized below:
- The identities of the parties (name and full address)
- The loan’s principal amount.
- The total amount of money owed.
- The borrower’s repayment frequency and length (monthly or in lump sums). There must be precise dates included.
- The rate of interest (it should also be specified whether it is fixed, variable, or increases).
- The lender has recourse in the event of late payment.
- Name of the person or company liable for loan repayment.
- The borrower must have existing property or assets to secure the loan (in case of a secured loan).
- Date and location of issuance.
How to Write a Promissory Note (Ohio)
The ultimate purpose of writing a promissory note is to make the document’s contents accurately reflect both the borrower’s duties and the lender’s rights. To achieve this, key elements of a contract must be included. And upon examining any sample promissory note, Ohio business owners can easily identify some of these key features of writing a promissory note. But parties must construct their promissory notes to match their own specific circumstances, regardless of the contents of an Ohio promissory note template.
Let us then highlight some crucial areas in drafting an Ohio promissory note form
- Definition of Terms
This section offers a list of the words used in the agreement, and their definitions within the context of the agreement.
- Start Date
This is one non-negotiable part of a promissory note when drafting. Upon examining multiple promissory note samples, business owners will easily realize that a commencement date is a common factor, stated in all the examined samples.
- Names and Mailing Addresses
Whether they are individuals or businesses, borrowers and lenders in Ohio are required to include their name, and full addresses in each promissory note.
- Payment Terms
The terms of payment are critical in a promissory note since they define the borrower’s duties. These are the terms for repaying the amount owed, which include principal and interest, default/nonpayment rate, payment method, and extension. This part may also include the date the promissory note was created, the names and mailing addresses of the borrower and lender, and the due dates for each payment. If the lender also wants to impose a fee for late payment, it should indicate how the fee should be paid and where it should be paid to.
- Interest Rate
Parties should also expressly indicate whether there is an annual interest rate on the loan in the promissory note. If the interest rate is to be computed monthly, a personal loan calculator can assist parties in determining the exact amount. This will, of course, depend on the original loan amount, among other factors. In Ohio, the highest interest rate that can be imposed on loans less than $100,000 is 8%. The rate may however be greater if the loan exceeds $100,000 or if certain forms of collateral are involved.
- Dated Signature
Unsecured and secured promissory notes in Ohio must be dated and signed by both parties, with their official names. In Ohio, there is no legal necessity that a promissory note be witnessed or notarized. However, the parties may choose to get the document notarized by a notary public, in order to be protected in the event of a lawsuit.
Types of Promissory Notes (Ohio)
Promissory notes are divided into two broad categories: secured and unsecured. In the case of a secured promissory note, Ohio residents and businesses who happen to be borrowers will be required to put up some type of collateral while signing them. Unsecured promissory notes, on the other hand, do not require any security or collateral.
Frequently Asked Questions
Can a Promissory Note be modified or adjusted?
Yes, it can. Although this would depend on the segment being altered. But in most cases, if the borrower and lender subsequently reach a different agreement, the terms can be adjusted. For example, both parties can agree that the borrower gets more time to repay the loan. And in return, the interest rate can be slightly increased.
What can render a promissory note invalid?
Anything that invalidates a valid contract in general, can invalidate a promissory note. For example, going against the law with respect to the contract would render it invalid. Going higher than the legally permitted interest rate is one typical example of going against the law.
What is a demand promissory note?
In a demand promissory note, the borrower is not obligated to repay the loan on any specific date until the lender demands for the owed balance. The loan amount is, therefore, said to be “repayable on demand”.
With over 20 years of experience as a finance lawyer, I have dedicated my career to simplifying complex financial relationships for individuals. I’ve prepared materials that will help you navigate financial transactions with ease, and I’m committed to ensuring that you have the knowledge and tools necessary to make informed decisions.