Illinois Promissory Note
Illinois promissory note template within the 9% usury cap and its exemptions, plus a 10-year statute of limitations. Free template. Attorney review available.
Introduction
Illinois caps interest at 9% per year in an ordinary written contract, but that cap comes with an exemption list fourteen categories long: a loan to a corporation, a business loan to a partnership, sole proprietorship, or similar business association, a loan secured by a mortgage on real estate, and several other statutory categories are carved out entirely and can be priced at any negotiated rate. Where the 9% cap does apply and gets broken, the penalty has real teeth: the borrower can recover double the interest, discount, and charges paid, plus reasonable attorney's fees and court costs. A promissory note is the document that fixes which side of that line a loan falls on, a written, signed promise by one party, the maker, to pay a definite sum to another, the payee, on demand or by a set date. An Illinois note does not need to be notarized or witnessed to be enforceable. Confession-of-judgment clauses, letting the payee obtain a court judgment without a lawsuit, are not banned outright, but Illinois has voided them in any consumer transaction, a loan for personal, family, or household purposes, since September 24, 1979; they remain usable in a business-purpose loan. You generally have 10 years from a missed payment, the note's stated due date, or a demand on a demand note to sue to collect, longer than the limitations period in most states.
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
Illinois caps interest at 9% per year in an ordinary written contract. (815 ILCS 205/4) A list of statutory exemptions, fourteen categories long, removes the cap entirely for a loan to a corporation, a business loan to a partnership, sole proprietorship, or similar business association, a loan secured by a mortgage on real estate, and several other categories, which may be priced at any negotiated rate. Where the cap does apply and is broken, the borrower can recover double the interest, discount, and charges paid, plus reasonable attorney's fees and court costs. (815 ILCS 205/6) Separately, a lender in the business of making loans who charges more than 9% APR on a non-exempt loan generally needs a license under the Consumer Installment Loan Act. (205 ILCS 670/1)
- 3
An Illinois promissory note does not need to be notarized or witnessed to be enforceable. Illinois Uniform Commercial Code Section 3-104 (810 ILCS 5/3-104) 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 let the payee obtain a court judgment against the maker without filing a lawsuit, are not banned outright in Illinois. They are void and unenforceable, though, in any "consumer transaction," a loan or other disposition to an individual for primarily personal, family, or household purposes, a rule in place since September 24, 1979. (735 ILCS 5/2-1301(c))
- 5
You generally have 10 years from a missed payment or the note's stated due date to sue to collect on a written promissory note in Illinois, or 10 years from a demand for payment on a demand note. (735 ILCS 5/13-206)
- 6
If an Illinois promissory note is secured by personal property rather than real estate, the lender generally needs to file a UCC-1 financing statement, typically with the Illinois Secretary of State, to protect its priority against other creditors. (810 ILCS 5/9-310)
- 7
Promissory notes are commonly used in Illinois for family loans, small business loans, and LLC capital-contribution loans. Since a corporate loan or a qualifying business loan is exempt from the 9% cap entirely, the applicable rate ceiling can look very different depending on who is borrowing and why.
Key decisions before you file
Before you file a Promissory Note in Illinois, 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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Illinois Requirements for Promissory Note
Illinois does not require a promissory note to be notarized or witnessed to be enforceable. Commercial Code Section 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.
In an ordinary written contract, the maximum is 9% per annum. A loan to a corporation, a business loan to a partnership, sole proprietorship, or similar business association, a loan secured by a mortgage on real estate, and several other statutorily listed categories are exempt from the cap entirely and may be priced at any negotiated rate.
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.
Generally 10 years from a missed payment or the note's stated due date to sue to collect on a written promissory note; for a demand note, generally 10 years from a demand for payment.
A confession-of-judgment power is void and unenforceable in any consumer transaction, a loan for primarily personal, family, or household purposes, as of September 24, 1979. It remains usable in a business-purpose loan, subject to the venue rules in subsection (c).
A license from the Illinois Department of Financial and Professional Regulation is required only for a person engaged in the business of making loans who charges more than 9% annual percentage rate. An isolated private person-to-person promissory note at or below 9% does not trigger licensing.
If a note is secured by personal property, the lender generally must file a UCC-1 financing statement, typically with the Illinois Secretary of State, to perfect and prioritize its security interest against other creditors.
A borrower who is knowingly charged unlawful interest may recover, by action or defense, double the total interest, discount, and charges paid or contracted for, plus reasonable attorney's fees and court costs.
Frequently Asked Questions
Illinois caps interest at 9% per year in an ordinary written contract. A long list of statutory exemptions removes the cap entirely for a loan to a corporation, a business loan, a loan secured by real estate, and several other categories, which can be priced at any negotiated rate. A lender in the business of making loans who charges more than 9% APR on a non-exempt loan generally needs a license under the Consumer Installment Loan Act.
No. Illinois Uniform Commercial Code Section 3-104 (810 ILCS 5/3-104) 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 Illinois's 9% cap unless the loan is exempt), the repayment schedule, what counts as default, and the signatures of the maker and payee. A confession-of-judgment clause can only be used in a business-purpose note; it's void in a loan for personal, family, or household purposes.
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 UCC Section 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, typically with the Illinois 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. In a business-purpose note, the payee may also be able to rely on a confession-of-judgment clause to get a judgment faster; that clause is void if the note is for personal, family, or household purposes.
Generally 10 years from a missed payment or the note's stated due date, under Illinois's statute of limitations for promissory notes and other written evidences of indebtedness (735 ILCS 5/13-206). For a demand note, the 10 years generally runs from when a demand for payment is made. Waiting too long can mean losing the right to sue on the note.
Yes. Promissory notes are commonly used in Illinois for both family loans and business or LLC loans. Which usury rules apply can differ sharply: a loan to a corporation or a qualifying business loan is exempt from the 9% cap entirely, while an ordinary loan between individuals is generally capped at 9% unless another exemption applies.