Alabama Promissory Note Template [PDF + Download]

A promissory note is a legally binding document in Alabama that outlines a written promise from the borrower (the individual receiving the loan) to repay the lender (the individual providing the loan) with agreed interest within a specified time frame or upon the lender's request.

It formalizes the parties' loan agreement in Alabama and serves as an acknowledgment of debt and a commitment to repayment.

To better understand a promissory note's meaning, reviewing its legal purpose and components is helpful. For added guidance, you can access a customized Contracts.net promissory note template and create a document tailored to your needs.

Types of Promissory Notes in Alabama

Promissory notes in Alabama are categorized into two main types based on the level of security provided for repayment.

Types of Promissory Note

#1. Secured Promissory Note

A secured promissory note is backed by collateral, often property. If the borrower fails to repay as agreed, the lender can sell the collateral, use the proceeds to cover the loan and interest, and return any remaining balance to the borrower if applicable. This process often involves legal procedures, especially if the borrower disputes the default.

#2. Unsecured Promissory Note

An unsecured promissory note is not tied to any collateral. It relies solely on the borrower's promise to repay. So, if the borrower defaults, the lender has no direct asset to claim for recovery. However, the lender can still pursue legal action (e.g., filing a lawsuit) to enforce repayment as outlined in the promissory note or related state debt agreement.

Signing Requirements for Promissory Notes in Alabama

The signing requirements for a promissory note to be recognized by law and enforceable in Alabama are as follows:

Signing Requirements

It must be in writing.
The parties must be clearly identified.
The parties' signatures must be included.
The terms must be specified, such as the loan amount, payment method, interest rate, and repayment date.

While witnesses are not required during the document's creation, having the note witnessed can provide additional validation and proof of its creation and terms. Additionally, though not mandatory, notarization is advisable, as it helps confirm the authenticity of the signatures and can help prevent future disputes.

Statutory Considerations for Alabama Promissory Notes

In Alabama, the regulation of interest rates on loans and usury is governed by Chapter 8 of the Alabama Code, and the following table summarizes these regulations:

Type of Loan	Interest Rate
General Loan	6% per annum (oral contracts) or 8% per annum (written contracts)
Loan Secured by Savings Accounts	Rate of return on savings + 2%
Board of Education Loans	Up to 15% per annum
General Loan or Forbearance (with principal not less than $2,000)	No rate limit; parties can set their own rate
Judgments (based on contract action)	Same rate as stated in the contract
Other Judgments	7.5% per annum

Under Alabama promissory note requirements, any interest rates higher than those allowed by Chapter 8 on loans are considered usurious, which means they are illegal.

These interest rate regulations apply to both personal and business loans, as promissory notes serve as a flexible tool to establish clear repayment terms for any type of lending agreement, whether it is for personal or business needs.

How to Enforce a Promissory Note in Alabama?

The steps to enforce a promissory note in Alabama depend on whether the note is secured or unsecured and whether the borrower defaults. However, an enforceable promissory note in Alabama gives the lender legal grounds to pursue recovery of the owed amount.

For a secured promissory note, the lender can repossess the collateral specified in the agreement. This can be done by hiring a professional repossession agency, which typically charges a fee but has a high success rate.

Unsecured promissory notes are more challenging to enforce because they lack collateral. In this case, the lender can go through small claims court proceedings. The first step is filing a claim in small claims court if the amount owed falls within Alabama’s small claims limits, which is up to $6,000. As stated in Section 6-2-34, the process must be started within six years of the debt becoming due.

After the legal process is completed and the judge finds that the claim is valid, they will issue a judgment that legally affirms the debt. However, if the borrower still doesn’t pay, the lender can take further action, such as garnishing wages or hiring a collection agency. Collection agencies are experts in debt recovery and ensure compliance with the Fair Debt Collection Practices Act (FDCPA).

How Can a Promissory Note in Alabama Be Changed or Revoked?

A promissory note sample in Alabama can be changed or revoked if all parties agree. For example, the borrower and lender may agree to adjust the repayment terms or forgive the debt entirely.

To ensure the changes are legally binding, it’s crucial to put everything in writing, as only a written document serves as valid proof of changes. Both parties must then review the updated terms and sign the document to indicate their agreement. This agreement can also be considered a repayment agreement in Alabama that outlines the new repayment terms.

Without all these steps, changes to a promissory note may not hold up legally and could lead to confusion or disputes. Each party should keep a copy of the amendment for their personal records and for protection reasons.