North Carolina 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

   North Carolina does not fix its usury ceiling as a number in the statute itself. For a loan of $25,000 or less, the Commissioner of Banks announces and publishes the maximum rate on the 15th of each month: the latest six-month Treasury bill rate plus 6%, rounded to the nearest half percent, or 16% per annum, whichever is greater, a floor that has held the published rate at 16% every month since 1984. Above $25,000, the parties may agree to any rate in writing. Absent a written rate, the default legal rate is 8% per annum. (North Carolina General Statutes Section 24-1.1; Section 24-1)

3. 3

   For a loan under $5,000 to a natural person, incurred primarily for personal, family, or household purposes, the annual percentage rate, including origination fees, may not exceed 36%. Knowingly charging more than the applicable cap forfeits the lender's entire interest on the note, and if the excess interest was already paid, the borrower may recover back double that amount. (North Carolina General Statutes Section 24-1.1(e); Section 24-2)

4. 4

   A North Carolina promissory note does not need to be notarized or witnessed to be enforceable. North Carolina General Statutes Section 25-3-104 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.

5. 5

   North Carolina has not banned confession-of-judgment clauses (a clause letting the payee get a court judgment without a full lawsuit) the way some states have. Rule 68.1 of the North Carolina Rules of Civil Procedure lets a maker confess judgment, for a debt already owed or one that may only become due later, by filing a signed and verified statement with the clerk of superior court in the county where the maker resides, where the maker owns real property, or where the payee resides. (North Carolina General Statutes Section 1A-1, Rule 68.1)

6. 6

   You generally have 3 years from a missed payment or the note's stated due date to sue to collect on a written promissory note in North Carolina. (North Carolina General Statutes Section 1-52(1))

7. 7

   If a North Carolina promissory note is secured by personal property, the lender generally needs to file a UCC-1 financing statement with the North Carolina Secretary of State to protect its priority against other creditors. A lender who makes loans of $25,000 or less at charges above Chapter 24's caps generally needs a North Carolina Consumer Finance Act license from the Commissioner of Banks; a private lender who stays within Chapter 24's caps does not. (North Carolina General Statutes Section 25-9-310; Section 25-9-501; Section 53-166)

North Carolina Requirements for Promissory Note

• Maximum Legal Interest Rate (North Carolina General Statutes Section 24-1.1)

  for a loan of $25,000 or less, the cap is the rate the Commissioner of Banks publishes monthly (the six-month Treasury bill rate plus 6%, or 16% per annum, whichever is greater); above $25,000, no statutory cap applies. The default rate absent a written contract rate is 8% per annum (Section 24-1), and a loan under $5,000 to a natural person for personal, family, or household purposes carries a separate 36% all-in annual percentage rate ceiling (Section 24-1.1(e)(3)).

• Usury Penalty (North Carolina General Statutes Section 24-2)

  knowingly charging more than the applicable cap forfeits the entire interest the note carries; if the excess interest was already paid, the payer may recover back double the amount paid.

• Negotiability Requirements (North Carolina General Statutes Section 25-3-104)

  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 (North Carolina General Statutes Section 1-52(1))

  generally 3 years from a missed payment or the note's stated due date to sue to collect on a written promissory note.

• Notarization Not Required for Validity (North Carolina General Statutes Section 25-3-104)

  North Carolina does not require a promissory note to be notarized or witnessed to be enforceable; notarization is optional and used only for evidentiary purposes.

• North Carolina Consumer Finance Act Scope (North Carolina General Statutes Section 53-166)

  a license from the Commissioner of Banks is required only to engage in the business of lending or servicing a loan of $25,000 or less at charges above what Chapter 24 otherwise permits; a private lender staying within Chapter 24's caps does not need one.

• Secured Transaction Filing (North Carolina General Statutes Section 25-9-310)

  if a note is secured by personal property, the lender generally must file a UCC-1 financing statement with the North Carolina Secretary of State to perfect and prioritize its security interest.

• Confession of Judgment Procedure (North Carolina General Statutes Section 1A-1, Rule 68.1)

  North Carolina permits confession of judgment, for a debt already due or one that may become due later, only through a signed and verified statement filed with the clerk of superior court in the county where the maker resides, owns real property, or where the payee resides; a bare contract clause does not itself create the judgment.