Arkansas Promissory Note

Introduction

Key Things to Know

1. 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. 2

   Arkansas caps interest at a flat 17% per annum on an ordinary loan or promissory note, with no separate lower rate for personal or household loans. A different rule applies to loans by federally insured banks, and governmental bonds and loans have no constitutional cap. (Ark. Const. Amend. 89, Section 3)

3. 3

   If a note under the general 17% cap charges more than that, the entire contract is void as to both principal and interest, not just the excess interest, and the Arkansas Constitution directs the General Assembly to prohibit such contracts by law. (Ark. Const. Amend. 89, Section 6)

4. 4

   An Arkansas promissory note does not need to be notarized or witnessed to be enforceable. Arkansas Code Section 4-3-104, which 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), does not include notarization or witnessing.

5. 5

   Arkansas does not flatly ban confession-of-judgment clauses (a clause letting the payee get a court judgment without a full lawsuit), but state law only allows a debtor to confess judgment by personally appearing in a court of competent jurisdiction and, with the creditor's assent, confessing judgment there. A boilerplate clause in the note by itself does not satisfy this requirement. (Ark. Code Section 16-65-301)

6. 6

   You generally have 5 years from a missed payment or the note's stated due date to sue to collect on a written promissory note in Arkansas. A partial payment or a written acknowledgment of default tolls (pauses and restarts) this deadline. (Ark. Code Section 16-56-111)

7. 7

   If an Arkansas promissory note is secured by personal property, the lender generally needs to file a UCC-1 financing statement to perfect its security interest and protect its priority against other creditors. (Ark. Code Section 4-9-310) Promissory notes are commonly used in Arkansas for both family loans and business or LLC loans, and the same 17% cap applies either way.

Arkansas Requirements for Promissory Note

• Maximum Legal Interest Rate (Arkansas Constitution, Amendment 89, Section 3)

  Arkansas caps interest at a flat 17% per annum for an ordinary loan or promissory note, with no separate lower rate for personal or household loans. A different rule applies to loans by federally insured depository institutions, and governmental bonds and loans made by or to governmental units have no constitutional cap.

• Negotiability Requirements (Arkansas Code Section 4-3-104)

  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.

• Statute of Limitations (Arkansas Code § 16-56-111)

  Generally 5 years from a missed payment or the note's stated due date to sue to collect on a written promissory note. A partial payment or a written acknowledgment of default tolls (pauses and restarts) this deadline.

• Secured Transaction Filing (Arkansas Code Section 4-9-310)

  If a note is secured by personal property, the lender generally must file a UCC-1 financing statement to perfect and prioritize its security interest against other creditors.

• Usury Penalty: Contract Void as to Principal and Interest (Arkansas Constitution, Amendment 89, Section 6)

  A note charging more than the flat 17% usury cap is void as to both principal and interest, not just the excess interest, a notably harsher rule than a typical forfeit-the-interest-only usury penalty. The Arkansas Constitution directs the General Assembly to prohibit such contracts by law.

• Confession of Judgment Permitted Only With Court Appearance (Arkansas Code Section 16-65-301)

  Arkansas does not flatly ban confession-of-judgment clauses, but a debtor can confess judgment only by personally appearing in a court of competent jurisdiction, with the creditor's assent, at the time judgment is entered. A pre-signed clause in a note cannot by itself create a valid confession of judgment.

• Notarization Not Required for Validity (Arkansas Code Section 4-3-104)

  Arkansas does not require a promissory note to be notarized or witnessed to be enforceable. Arkansas Code Section 4-3-104'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.

• Private Lending License Exemption (Arkansas Code Section 23-39-502)

  Arkansas Fair Mortgage Lending Act licensing applies only to a person "engaged in the business of" making or arranging mortgage loans for compensation or other gain. An isolated private person-to-person promissory note, even if secured by real property, does not by itself trigger this licensing requirement.