Ohio 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

   Ohio caps interest at 8% per year on an ordinary written promissory note. (Ohio Revised Code Section 1343.01) The cap disappears entirely, not just rises, for a note with a principal over $100,000 or a genuine business loan; a loan secured by a mortgage, deed of trust, or land installment contract on real estate instead gets a separate ceiling of up to 8 percentage points over the 90-day commercial paper discount rate at the Federal Reserve Bank of Cleveland.

3. 3

   If a lender charges more than the legal rate, Ohio's penalty is comparatively mild: the excess interest is treated as a payment on the principal rather than forfeited, and judgment can be entered for no more than the balance actually due after that amount is deducted. (Ohio Revised Code Section 1343.04)

4. 4

   An Ohio promissory note does not need to be notarized or witnessed to be enforceable. Ohio Revised Code Section 1303.03 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

   A cognovit clause (a warrant of attorney letting the payee get a court judgment against the maker without notice or a trial) is allowed in Ohio for a business-purpose note, but only with a specific, conspicuous statutory warning printed directly above or below the signature line. The clause is void, and courts lack jurisdiction to enforce it, in any note for a consumer loan, one made mainly for personal, family, educational, or household purposes. (Ohio Revised Code Section 2323.13)

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 Ohio. (Ohio Revised Code Section 2305.06) This period was 8 years for claims that accrued before June 16, 2021, and 15 years before a 2012 change, so an older note's deadline can depend on when the claim accrued.

7. 7

   If an Ohio promissory note is secured by personal property rather than real property, the lender generally needs to file a UCC-1 financing statement with the Ohio Secretary of State to protect its priority against other creditors. (Ohio Revised Code Section 1309.310) Promissory notes are commonly used in Ohio for family loans and business or LLC loans; a lender engaged in the business of lending $5,000 or less generally needs a Small Loan Act license, though an isolated private note does not trigger that requirement. (Ohio Revised Code Section 1321.02)

Ohio Requirements for Promissory Note

• Notarization Not Required for Validity (Ohio Revised Code Section 1303.03)

  Ohio does not require a promissory note to be notarized or witnessed to be enforceable. Ohio Revised Code Section 1303.03'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 (Ohio Revised Code Section 1343.01)

  8% per annum for an ordinary written promissory note; the cap does not apply at all to a note with a principal over $100,000 or a genuine business loan, and a real-estate-secured note instead gets a ceiling of up to 8 percentage points over the 90-day commercial paper discount rate at the Federal Reserve Bank of Cleveland.

• Usury Penalty for Excess Interest (Ohio Revised Code Section 1343.04)

  Interest paid above the legal rate is credited as a payment on the principal rather than forfeited; a court can render judgment for no more than the balance actually due after that deduction.

• Negotiable Instruments Requirements (Ohio Revised Code § 1303.03)

  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 (Ohio Revised Code § 2305.06)

  Generally 6 years from a missed payment or the note's stated due date to sue to collect on a written promissory note; this period was 8 years for claims accrued before June 16, 2021, and 15 years before a 2012 change.

• Small Loan Act Licensing Scope (Ohio Revised Code Section 1321.02)

  A person engaged in the business of lending money in amounts of $5,000 or less generally needs a license from the Ohio Division of Financial Institutions; an isolated private person-to-person promissory note does not trigger this requirement.

• Confession of Judgment (Ohio Revised Code § 2323.13)

  A cognovit clause is permitted for a business-purpose note only with a specific, conspicuous statutory warning printed at the signature line; it is void and unenforceable, and courts lack jurisdiction over it, in any note for a consumer loan (personal, family, educational, or household purposes).

• Secured Transaction Filing (Ohio Revised Code Section 1309.310)

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