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A promissory note is a written promise from a borrower to repay a loan to a lender under agreed terms. The purpose of this document is to create a clear loan agreement in Massachusetts by outlining key details like the loan amount, repayment terms, and interest rate.
This agreement offers both parties legal protection, as it is legally binding and helps prevent future disputes.
In this article, we'll explain the meaning of a promissory note, explore the types, and provide a sample for reference.
Types of Promissory Notes in Massachusetts
There are two main types of promissory notes in Massachusetts—secured and unsecured. The key difference between the two lies in the collateral.
Types of Promissory Notes
#1. Secured Promissory Notes
A secured promissory note provides more protection for the lender but is less commonly used. In addition to the borrower's promise to repay, this type of note requires the borrower to back the loan with collateral—an asset such as a car, property, or other valuable item.
This way, if the borrower fails to repay as agreed, the lender can recover the loan amount by claiming the collateral. Secured promissory notes are typically used for larger loans and may come with better terms, such as lower interest rates, due to the added security.
#2. Unsecured Promissory Notes
An unsecured promissory note does not require any collateral, which makes it more risky for the lender. Since there is no asset to secure the loan, the lender relies solely on the borrower's promise to repay.
As a result, this type of note often comes with higher interest rates and is usually used for smaller loan amounts.
Signing Requirements for Promissory Notes in Massachusetts
The signing requirements for a promissory note in Massachusetts outline the necessary elements to make the document legally valid and enforceable. Let’s go over each of the requirements:
Signing Requirements
The note must be in written form.
It should provide details about the parties, such as names and contact information.
The document must state all key elements of the Massachusetts debt agreement, including loan amount, interest rate, due date, and payment methods.
Both parties must sign the document to confirm their agreement.
With all these elements in place, the promissory note becomes a legally binding document and can be used as valid proof in court. However, for extra legal protection, it is recommended to have the note witnessed or notarized.
Additionally, using available promissory note templates can help ensure that all required elements are included and that the document is properly structured for your specific loan agreement.
Statutory Considerations for Massachusetts Promissory Notes
Promissory notes in Massachusetts are subject to various state laws that regulate interest rates and ensure their validity. It’s important to be aware of the promissory note Massachusetts requirements, particularly concerning interest rates and usury laws. With that being said, here are the key statutory considerations:
Type of Loan | Interest Rate | Statutory Reference |
With a Contract | No limit, subject to state law in some cases | |
Without a Contract | 6% unless agreed otherwise, with exceptions for small loans under $1,000 | Section 107.3 Section 140.90 |
Criminal Rate | Any loan exceeding 20% per annum is subject to penalties | |
Mortgages | 1.5% per month for 6 months before default; 1% per month after default for loans > $1,500 | |
Pawnbrokers | 12-36% APR, depending on city or town |
How to Enforce a Promissory Note in Massachusetts?
To enforce a promissory note in Massachusetts when a borrower defaults, the first step is to review the note to ensure it is clear, legally valid and includes all necessary details. If the borrower fails to repay, the next step is to send a demand letter formally requesting payment, specifying the amount owed, and setting a deadline for repayment.
If the borrower still does not pay, and the owed amount is $7,000 or less, the lender can file a claim in Massachusetts small claims court. This process is designed to be straightforward and cost-effective. The lender will need to gather relevant documents, such as an enforceable promissory note in Massachusetts, any communication with the borrower, and the demand letter, to present at the hearing.
If the court rules in the lender's favor, they may receive a judgment allowing them to take steps to collect the debt, such as wage garnishment or property lien.
How Can a Promissory Note in Massachusetts Be Changed or Revoked?
A promissory note in Massachusetts can be changed or revoked if both parties agree to the changes. This often happens when the terms of the loan need to be adjusted or if the borrower and lender decide to end the agreement. Any changes should always be documented in writing to ensure clarity and avoid disputes.
Both parties must sign the changed or revoked note for it to be valid. If you are updating your repayment agreement in Massachusetts, make sure to outline the new terms clearly and confirm that all signatures are obtained.