Alabama Promissory Note
Alabama promissory note template: 8% usury cap under $2,000, no cap above it, 6-year statute of limitations. Free template. Attorney review available.
Introduction
In Alabama, the usury cap on a promissory note depends almost entirely on the size of the loan. Once the original principal balance reaches $2,000, Alabama Code Section 8-8-5 lets the maker and payee agree to any interest rate at all, since the state's usury limits stop applying entirely at that threshold. Below $2,000, Alabama falls back to a more conventional structure: up to 8% per year on a written contract, or 6% per year if no rate is fixed in writing (Alabama Code Section 8-8-1). A promissory note itself is a written, signed promise by one party, the maker, to pay a definite sum of money to another party, the payee, either on demand or by a set date, and it's the paper trail that makes a loan legally enforceable if the maker doesn't pay. An Alabama promissory note doesn't need to be notarized or witnessed to be enforceable. Confession-of-judgment clauses, letting the payee get a court judgment without a lawsuit, have long been void in Alabama under a Statute of Frauds provision, not a recent reform. A lender who charges above the applicable cap on a sub-$2,000 loan forfeits all interest and can collect only the principal. You generally have 6 years from a missed payment or the note's stated due date to sue to collect on a written note in Alabama.
Key Things to Know
- 1
A promissory note is a written, signed promise by one party (the maker) to pay a definite sum of money to another party (the payee), either on demand or by a set date.
- 2
For a loan or forbearance with an original principal balance of $2,000 or more, Alabama Code Section 8-8-5 lets the parties agree to any interest rate, with no statutory usury cap at all. Below $2,000, the maximum is 8% per year by written contract, or 6% per year without one (Alabama Code Section 8-8-1). A lender who charges more than the applicable cap on a sub-$2,000 loan forfeits all interest and can recover only the principal (Alabama Code Section 8-8-12).
- 3
An Alabama promissory note does not need to be notarized or witnessed to be enforceable. Alabama Code Section 7-3-104, the state's version of the Uniform Commercial Code's negotiable-instrument rules, lists what makes a note a valid negotiable instrument (an unconditional promise, a fixed amount, a signature, payable on demand or by a definite date), and notarization isn't one of the requirements.
- 4
Confession-of-judgment clauses, which would let the payee obtain a court judgment against the maker without filing a lawsuit, are void in Alabama. Any agreement to confess judgment made before a lawsuit is filed is void, and a judgment entered on one can be set aside on motion within six months of entry. (Alabama Code Section 8-9-11)
- 5
You generally have 6 years from a missed payment or the note's stated due date to sue to collect on a written promissory note in Alabama. (Alabama Code Section 6-2-34)
- 6
If an Alabama promissory note is secured by personal property rather than real property, the lender generally needs to file a UCC-1 financing statement with the Alabama Secretary of State to protect its priority against other creditors. (Alabama Code Section 7-9A-310)
- 7
Promissory notes are commonly used in Alabama for family loans, business loans, and loans between friends. An isolated private loan generally doesn't trigger the licensing or disclosure rules of the Alabama Consumer Credit Act, known as the Mini-Code, which apply only to a creditor who regularly extends credit more than 25 times a year. (Alabama Code Section 5-19-1)
Key decisions before you file
Before you file a Promissory Note in Alabama, a few decisions shape the document: which option to choose and what each one means. The Promissory Note guide walks through them.
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Alabama Requirements for Promissory Note
For a loan or forbearance with an original principal balance under $2,000, the maximum rate of interest is 8% per annum by written contract, or 6% per annum if no rate is fixed in writing. A lender who charges above the applicable cap forfeits all interest and can recover only the principal (Alabama Code Section 8-8-12).
To be a valid negotiable instrument, a note must be an unconditional promise to pay a fixed amount, signed by the maker, and payable on demand or at a definite time.
Alabama does not require a promissory note to be notarized or witnessed to be enforceable. Code Section 7-3-104's list of what makes a note a valid negotiable instrument does not include notarization or witnessing; notarization is optional and used only for evidentiary purposes.
Generally 6 years from a missed payment or the note's stated due date to sue to collect on a written promissory note ("actions founded on promises in writing not under seal").
For a loan or forbearance with an original principal balance of $2,000 or more, the parties may agree to any interest rate, and Alabama's usury caps do not apply at all. Consumer-protection unconscionability law, including the Mini-Code (Title 5, Chapter 19), still applies to these transactions even though the rate cap itself does not.
Mini-Code licensing, disclosure, and rate rules apply only to a "creditor" who regularly extends or arranges credit, meaning more than 25 times in the preceding calendar year (or more than 5 times for credit secured by a one-to-four-unit residential structure). An isolated private person-to-person note does not trigger these requirements.
Any agreement to confess judgment made before a lawsuit is filed is void in Alabama, and a judgment entered on one is set aside and annulled on motion if made within six months of entry. A promissory note should not include a confession-of-judgment or cognovit clause.
If a note is secured by personal property, the lender generally must file a UCC-1 financing statement with the Alabama Secretary of State to perfect and prioritize its security interest against other creditors.
Frequently Asked Questions
For a loan or forbearance with an original principal balance under $2,000, Alabama caps interest at 8% per year on a written contract, or 6% per year if no rate is fixed in writing. Once the original principal balance reaches $2,000, Alabama Code Section 8-8-5 removes the cap entirely and lets the parties agree to any rate.
No. Alabama Code Section 7-3-104 lists what makes a note a valid, enforceable negotiable instrument, and notarization isn't one of the requirements. Notarizing a note is optional and can help as evidence of who signed it, but it doesn't affect enforceability.
Include the principal amount, the interest rate (within Alabama's usury cap if the loan is under $2,000), the repayment schedule, what counts as default, and the signatures of the maker and payee. Since confession-of-judgment clauses are void in Alabama, don't include one; the note relies on a regular lawsuit for enforcement if the maker defaults.
Yes, as long as it meets the basic requirements of a valid contract and, if it's meant to be a negotiable instrument, the elements in Alabama Code Section 7-3-104: an unconditional promise to pay a fixed amount, a signature, and payment on demand or by a definite date. It doesn't need to be notarized to be enforceable.
An unsecured note relies only on the maker's promise to pay. A secured note is backed by collateral, and if it's secured by personal property rather than real estate, the lender generally needs to file a UCC-1 financing statement with the Alabama Secretary of State to protect its priority against other creditors.
The payee can declare the remaining balance immediately due (if the note includes an acceleration clause) and can sue to collect. Any agreement to confess judgment made before a lawsuit is filed is void in Alabama, so the payee cannot get a judgment without filing a regular lawsuit.
Generally 6 years from a missed payment or the note's stated due date, under Alabama's statute of limitations for actions on a written promise (Alabama Code Section 6-2-34). Waiting too long can mean losing the right to sue on the note.
Yes. Promissory notes are commonly used for both family loans and business or LLC loans in Alabama. An isolated private loan generally doesn't trigger the licensing or disclosure rules of the Alabama Consumer Credit Act (the Mini-Code), which apply only to a creditor who regularly extends credit more than 25 times a year, but the same usury rules apply based on the loan's size regardless of who the parties are.