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A Maryland promissory note defines the terms agreed upon by a lender and borrower regarding the repayment of loaned money. It establishes the date by which the principal balance and accrued interest shall be paid in full, and may include charges for any periodic installment the borrower fails to pay on time. Lenders can lessen the financial risk of loaning money by securing the note with some form of collateral. If the borrower defaults on the note obligations, the lender will seize the borrower’s collateral in order to recuperate all or part of the unpaid balance.
Should the borrower fail to pay the entire balance by the due date, the unpaid amount shall accumulate interest at the greatest rate permitted by law. In most cases, the interest rate will be set to 8% but may vary depending on the purpose of the loan and whether the note is backed by security (see interest rates below).
Types (2)
Secured Promissory Note – Loans recorded in a secured note are protected with collateral.
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Unsecured Promissory Note – Designed for lending transactions where funds are issued without collateral.
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Laws
- Interest & Usury Laws: Com. Law, Title 12, Sub. 1
- Usury Rate for Written Contract (§ 12-103(a)(1)): 8%
- Usury Rate in General (§ 12-102): 6%
- Usury Rate for Loan Secured by Certificate of Deposit (§ 12-103(a)(2)): 2% above the interest rate on the certificate of deposit.
- Usury Rate for Loan Secured by Mortgage or Deed of Trust (§ 12-103(d)): No maximum; must comply with federal law.
- Exceptions for Written Contract: Certain loans permit a maximum interest rate of 24%, or 18% if the loan is made before July 1, 1982. Applicable loans include unsecured loans, installment loans not secured by real property, and loans secured by something other than a savings account. However, to impose a 24% interest rate, the loan must comply with the requirements set in § 12-103(a)(3) et seq.
- Additional Exceptions: Any rate of interest may be applied to the following transactions:
- Loans to corporations (§ 12-103(e)(1)(i))
- Commercial loans over $15,000 not secured by residential real property (§ 12-103(e)(1)(ii))
- Commercial loans in excess of $75,000 secured by residential real property (§ 12-103(e)(1)(iii))
- Interest owed to a broker/dealer for a debit balance that is payable on demand and secured (§ 12-103(f))