Tennessee Promissory Note
Tennessee promissory note template within the state's weekly formula rate cap and 6-year statute of limitations. Free template. Attorney review available.
Introduction
Tennessee's usury cap does not sit still. The Commissioner of Financial Institutions announces a new maximum interest rate every week, calculated as 4 percentage points above the average prime loan rate the Federal Reserve published the prior week. As of the most recent announcement, the published formula rate for a signed written promissory note is 10.75% per annum, a figure that moves again the next time the Federal Reserve's prime rate shifts, so confirm the current week's published rate before finalizing a note. (A transaction without a signed written rate is capped instead at a rate of 10% per annum, and the formula rate itself carries a 24% ceiling; confirm both against the current statute.) A promissory note is what turns this weekly-adjusted ceiling into something concrete: 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. A Tennessee note does not need to be notarized or witnessed to be enforceable. A confession-of-judgment clause written into the note at signing is void, since Tennessee law voids any confession of judgment agreed to before a lawsuit is filed and the maker served; it only works if agreed to after that point. You generally have 6 years from a missed payment or the note's due date to sue to collect on a written note, or 10 years if the note is payable on demand (confirm both against the current statute).
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
For a signed written promissory note, Tennessee's interest-rate cap is the "formula rate," announced weekly by the Commissioner of Financial Institutions: 4 percentage points above the average prime loan rate the Federal Reserve most recently published. As of the most recent announcement, the published rate is 10.75% per annum. Confirm the current week's published rate before setting a note's interest rate. (Tenn. Code Ann. Sections 47-14-102, 47-14-103, 47-14-105)
- 3
The formula rate is capped at 24% per annum if Federal Reserve prime-rate data ever stops being published or the formula becomes inapplicable. For a transaction without a signed written interest rate, the maximum is 10% per annum instead of the formula rate. Confirm the current statute before relying on either figure. (Tenn. Code Ann. Section 47-14-102(7), Section 47-14-103(3))
- 4
A Tennessee promissory note does not need to be notarized or witnessed to be enforceable. Tennessee Code Section 47-3-104 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
A confession-of-judgment clause (a clause letting the payee get a court judgment without a full lawsuit) is void if the maker agrees to it before a lawsuit is filed and served. It can only be used if agreed to after a lawsuit over the note has already been filed and the maker served with it. (Tenn. Code Ann. Section 25-2-101)
- 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 Tennessee. If the note is payable on demand rather than by a due date, the period is 10 years instead. Confirm the current statute before relying on either figure. (Tenn. Code Ann. Section 28-3-109)
- 7
If a Tennessee promissory note is secured by personal property rather than real property, the lender generally needs to file a UCC-1 financing statement with the Tennessee Secretary of State to protect its priority against other creditors. The filing is effective for 5 years and can be renewed with a continuation statement. (Tenn. Code Ann. Section 47-9-310)
Key decisions before you file
Before you file a Promissory Note in Tennessee, 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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Tennessee Requirements for Promissory Note
For a signed written promissory note, the cap is the "formula rate" announced weekly by the Commissioner of Financial Institutions (4 percentage points above the most recently published average prime loan rate; published at 10.75% per annum as of the most recent announcement). For a transaction without a signed written rate, the maximum is 10% per annum; confirm the current statute before relying on this figure.
The formula rate is capped at 24% per annum if Federal Reserve prime-rate data ever stops being published. The Commissioner of Financial Institutions must announce the current formula rate weekly; confirm the current rate before drafting a note's interest-rate term.
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 6 years from a missed payment or the note's stated due date to sue to collect on a written promissory note; 10 years instead if the note is payable on demand. Confirm the current statute before relying on either figure.
Tennessee does not require a promissory note to be notarized or witnessed to be enforceable. Commercial Code Section 47-3-104'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.
If a note is secured by personal property, the lender generally must file a UCC-1 financing statement with the Tennessee Secretary of State to perfect and prioritize its security interest, effective for 5 years and renewable with a continuation statement.
Registration with the Commissioner of Financial Institutions under the Industrial Loan and Thrift Companies Act is required only for a person engaged in business as an industrial loan and thrift company. An isolated private person-to-person promissory note does not, by itself, trigger this requirement.
A confession-of-judgment clause agreed to before a lawsuit is filed and the maker served is void. A promissory note drafted at signing should not include an enforceable confession-of-judgment clause; the clause only works if agreed to after litigation on the note has already begun.
Frequently Asked Questions
For a signed written promissory note, the cap is the "formula rate," a rate the Commissioner of Financial Institutions announces weekly: 4 percentage points above the average prime loan rate the Federal Reserve most recently published. As of the most recent announcement, the published rate is 10.75% per annum. For a transaction without a signed written rate, the cap is 10% per annum instead, and the formula rate carries a 24% ceiling. Because the formula rate changes weekly, confirm the current published rate and the current statute text before setting a note's interest rate.
No. Tennessee Code Section 47-3-104 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, an interest rate that doesn't exceed the current formula rate, the repayment schedule, what counts as default, and the signatures of the maker and payee. Since a confession-of-judgment clause agreed to before a lawsuit is filed is void in Tennessee, don't include one at signing; the note instead relies on a regular lawsuit for enforcement if the maker defaults.
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 Tennessee Code Section 47-3-104: 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 with the Tennessee Secretary of State to protect its priority against other creditors. The filing is effective for 5 years and can be renewed with a continuation statement.
The payee can declare the remaining balance immediately due (if the note includes an acceleration clause) and can sue to collect. A confession-of-judgment clause agreed to before the lawsuit is filed is void in Tennessee, so the payee generally cannot get a judgment without filing a regular lawsuit and having the maker served, unless the parties separately agree to one after that point.
Generally 6 years from a missed payment or the note's stated due date, under Tennessee's statute of limitations for contract actions not otherwise covered (Tenn. Code Ann. Section 28-3-109). If the note is payable on demand rather than by a stated due date, the period is 10 years instead; confirm the current statute before relying on either figure. Waiting too long can mean losing the right to sue on the note.
Yes. Promissory notes are commonly used for both family loans and business loans in Tennessee. The same weekly formula-rate cap and other rules generally apply to a private, occasional loan; a lender who regularly engages in the business of making loans, rather than making an isolated loan to family or a business contact, may separately need to register with the Tennessee Department of Financial Institutions under the Industrial Loan and Thrift Companies Act.