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A promissory note in Indiana is a legally binding document that outlines the borrower's commitment to repay a specified amount of money under agreed-upon terms. It is used to formalize loan agreements in Indiana, often between trusted individuals, such as family and friends, especially for smaller loans.
This document specifies key details, such as the repayment schedule, interest rate, and penalties for non-payment.
In this article, we will delve deeper into the meaning of a promissory note, break down its key elements, and provide a promissory note sample to guide you through creating a valid note that ensures clarity and protection for both parties involved.
Types of Promissory Notes in Indiana
Indiana has two main types of promissory notes—secured and unsecured. These types differ based on whether collateral is involved or not.
Types of Promissory Notes
#1. Secured Promissory Note
A secured promissory note is less common but offers more protection for the lender. In this type of promissory note, the borrower not only promises to repay the loan but also provides collateral—an asset that secures the loan.
If the borrower fails to repay the loan as agreed, the lender can seize the collateral to recover the debt. This type of note provides more assurance to the lender that the loan will be repaid.
#2. Unsecured Promissory Note
An unsecured promissory note is more commonly used and relies solely on the borrower's promise to repay the loan. No collateral is involved, meaning the lender must trust the borrower to fulfill the repayment terms. If the borrower defaults, the lender has limited options for recovery because there is no collateral to seize.
Signing Requirements for Promissory Notes in Indiana
Signing requirements for promissory notes in Indiana include the following key elements to ensure the document is legally valid and enforceable:
Signing Requirements
The note must be documented in written form.
The parties involved in the agreement must be identified by their full legal names and addresses.
The note should include essential details from the Indiana debt agreement, including the loan amount, payment method, due date, and interest rate.
Both parties must sign the document to ensure it is valid.
Once these elements are included, the promissory note is enforceable by law. However, for extra legal protection, having the document witnessed or notarized in front of a notary public is recommended.
This additional step helps confirm the authenticity of the signatures and provides further validation of the document. Parties can also choose to use a promissory note template, which they can adjust as needed to reflect the specifics of their loan agreement.
Statutory Considerations for Indiana Promissory Notes
Understanding promissory note Indiana requirements is crucial to ensure the document’s legality. These notes must adhere to specific state laws regarding interest rates and negotiability. The table below summarizes key interest rate caps:
Loan Type | Interest Rate Caps | Indiana Code |
Unsupervised Loans | 21% per annum | |
Supervised Loans | 15%-36% (varies by loan amount) | |
Monetary Judgments (Based on Contract) | Up to 8% per annum | |
Monetary Judgment (No Agreement) | 8% per annum | |
Judgments Against the State | 6% after 45 days |
Charging interest rates above 72% per annum is considered loan sharking and is a criminal offense.
How to Enforce a Promissory Note in Indiana
To enforce a promissory note in Indiana, the lender can take several steps when a borrower defaults. First, confirm the document is an enforceable promissory note in Indiana.
Then, send a formal demand letter requesting payment and warning of legal action if the borrower doesn’t comply. If there’s still no repayment, the lender can file a claim in Indiana’s small claims court, provided the unpaid amount does not exceed $6,000. For larger amounts, a case may need to be filed in a higher court.
If the lender wins a judgment, they can take further steps to collect the debt. This may include garnishing the borrower’s wage, levying their bank account, or placing a lien on their property. It is important to note that the lender must file a claim within the six-year limit after the due date.
How Can a Promissory Note in Indiana Be Changed or Revoked?
A promissory note in Indiana can be changed or revoked if all parties involved mutually agree to the changes. Whether they’re adjusting payment terms and interest rates or canceling the obligation entirely, it’s essential to follow a clear process.
First, any amendments or revocations must be documented in writing, often as an updated repayment agreement in Indiana. This ensures there’s a formal record of the agreement, reducing the risk of future disputes. Second, all parties must review and sign the updated document to confirm their consent. Without proper signatures, the changes are not legally enforceable.
It’s also a good idea to consult an attorney when modifying or revoking a promissory note so the parties can be sure that the updated agreement complies with Indiana laws.