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An Illinois promissory note is a written agreement between two (2) parties whereby one individual promises to repay a sum of money borrowed from the other. A promissory note demonstrates that money was advanced to the borrower under the condition that the sum be refunded to the lender within a certain time frame. Other components of the form include the interest rate, the amount of each installment (if applicable), and the penalties for late payment.
By documenting the loan terms in a promissory note, the lender is afforded protection in the event the borrower defaults on their obligations. The note may also be backed by “security,” which is an asset the borrower puts down as collateral for the loan.
Types (2)
Secured Promissory Note – Requires the borrower to put down an asset as collateral before receiving funds from the lender.
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Unsecured Promissory Note – Does not require a pledge of collateral (should only be used for low-risk borrowers).
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Laws
- Interest & Usury laws: 815 ILCS 205 & 815 ILCS 123
- Usury Rate for Written Contracts (815 ILCS 205/4): *9% APR, unless otherwise authorized by the Predatory Loan Prevention Act (PLPA), in which case the interest rate cannot exceed 36% APR. **The following transactions are subject to the PLPA:
- Consumer Loans (205 ILCS 670/15(a))
- Payday Loans (815 ILCS 122/2-5(e-5))
- Retail Installment Contracts (815 ILCS 405/27)
- Retail Charge Agreements (815 ILCS 405/28)
- Vehicle Retail Installment Contracts (815 ILCS 375/21)
- Usury Rate for Money Due on Written Instrument (815 ILCS 205/2): 5%
- Usury Rate for Monetary Judgments (735 ILCS 5/2-1303(a)): 9%, or 6% if the debtor is a unit of local government (e.g., county, township, municipality).
- Usury Rate for Loan or Forbearance (815 ILCS 205/1): 5%
- Usury Rate for Pawnbrokers (205 ILCS 510/2): 3% per month.
*Any rate of interest may be charged by banks and savings banks. Furthermore, any rate of interest may be applied with respect to the transactions listed in 815 ILCS 205/4(1)(a) – (n), unless specifically prohibited by the PLPA.
**The PLPA does not apply to banks, savings banks, savings and loan associations, credit unions, and insurance companies.