A California promissory note is a crucial legal instrument in formalizing a loan agreement between a lender and a borrower. It serves as a written commitment from the borrower to repay a specified sum within a defined timeframe. While it does not outline the consequences of complete default, the lender retains the option to pursue legal action if the borrower fails to pay on time or refuses to make payments.
The state’s legal landscape emphasizes consumer protection; therefore, these types of documents may include additional provisions to safeguard borrowers’ rights, such as disclosures regarding their rights and obligations, as well as provisions addressing prepayment penalties, acceleration clauses, and non-recourse language.
Laws: Governed by the California Civil Code, promissory notes in California must be in writing and adhere to specific requirements to ensure their legality and enforceability (§ 1624).
Statute of Limitations: Four years.
By Type
Usury Laws and Interest Rates
Promissory notes must comply with the state’s usury laws as detailed in CONS Article XV.
- For Personal, Family, or Household Purposes (CONS Article XV (1)): Over 10%.
- For Home Purchases and Improvement, and Business Expenses (CONS Article XV (2)): More than 10% or over 5% on top of the Federal Reserve Bank of San Francisco’s discount rate, whichever is higher.
- For Money Judgment (CCP § 685.010): Over 10%.
- For Judgment for Damages (CIV § 3287(c)): Over 7%.
- For Pawn Brokers (CIV § 21200): Over 3%.
