Indiana 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

   For an ordinary private loan primarily for personal, family, or household purposes made by someone not regularly in the lending business, the interest rate is commonly cited as up to 25% per year without needing a state lender's license. Absent any written rate, Indiana's default rate is 8% per year. Confirm the current statute (Indiana Code Section 24-4.5-3-602) before relying on the 25% figure specifically. (Indiana Code Sections 24-4.5-3-602, 24-4.6-1-102)

3. 3

   Indiana's Department of Financial Institutions describes a blended maximum finance charge of 36% or a flat 25%, whichever is greater, for general consumer loans, with a licensed "supervised lender" scale reaching 36% on the smallest balances. Charging more than roughly double that supervised-lender tier, commonly cited near 72% APR, is criminal loansharking, a felony that also voids the loan. (Indiana Code Section 35-45-7-2)

4. 4

   An Indiana promissory note does not need to be notarized or witnessed to be enforceable. Indiana Code Section 26-1-3.1-104 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.

5. 5

   Confession-of-judgment and cognovit-note clauses (a clause letting the payee get a court judgment without a lawsuit) are not just unenforceable in Indiana, they're criminally banned. An agreement to confess judgment entered before a cause of action accrues is void, and knowingly procuring, holding, or attempting to enforce a cognovit note is a Class B misdemeanor. (Indiana Code Sections 34-54-3-2, 34-54-3-3, 34-54-4-1)

6. 6

   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 Indiana. (Indiana Code Section 34-11-2-9)

7. 7

   If an Indiana promissory note is secured by personal property, the lender generally needs to file a UCC-1 financing statement with the Indiana Secretary of State, Business Services Division, to protect its priority against other creditors. Promissory notes are commonly used in Indiana for family loans, small business loans, and LLC loans between members. (Indiana Code Section 26-1-9.1-310)

Indiana Requirements for Promissory Note

• Notarization Not Required for Validity (Indiana Code Section 26-1-3.1-104)

  Indiana does not require a promissory note to be notarized or witnessed to be enforceable. Indiana Code Section 26-1-3.1-104'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.

• Maximum Legal Interest Rate (Indiana Code Section 24-4.5-3-602)

  For an ordinary private loan primarily for personal, family, or household purposes made by a lender not regularly in the business of lending, the rate is commonly cited as up to 25% per year without a state lender's license. Confirm the current statute before relying on this figure.

• Criminal Loansharking Threshold (Indiana Code Section 35-45-7-2)

  Charging more than roughly double a DFI-licensed supervised lender's finance-charge tier, commonly cited near 72% APR, is criminal loansharking, a felony, and voids the loan.

• Negotiable Instruments Law (Indiana Code Section 26-1-3.1-104)

  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 (Indiana Code Section 34-11-2-9)

  Generally 6 years from a missed payment or the note's stated due date to sue to collect on a written promissory note executed after August 31, 1982.

• Confession of Judgment Banned (Indiana Code Section 34-54-3-2)

  An agreement to confess judgment on a note entered before a cause of action accrues is void, and knowingly procuring, holding, or enforcing a cognovit note is a Class B misdemeanor under Indiana Code Section 34-54-4-1.

• Consumer Related Loan Licensing Exemption (Indiana Code Section 24-4.5-3-602)

  A private, occasional lender making a loan primarily for personal, family, or household purposes to an individual is a "consumer related loan" and does not need a Department of Financial Institutions lender's license, unlike a "supervised lender" who regularly makes loans and must be DFI-licensed.

• Secured Transaction Filing (Indiana Code Section 26-1-9.1-310)

  If a note is secured by personal property, the lender generally must file a UCC-1 financing statement with the Indiana Secretary of State, Business Services Division, to perfect and prioritize its security interest against other creditors.