Is a promissory note legally binding in Georgia?

Yes. A promissory note is legally binding in Georgia when the borrower signs a written promise to repay a stated amount on stated terms. The lender generally has six years to sue on it, and Georgia caps interest at 16 percent simple interest on loans of $3,000 or less, with a criminal limit of 5 percent per month on most loans.

What makes a promissory note enforceable in Georgia?

A court will look for a clear agreement. Your note should name the lender and the borrower, state the principal, give the interest rate, explain when and how repayment happens, and carry the borrower's signature. A due date or payment schedule matters a great deal, because it tells a court when the time to sue began.

For loans above $3,000, Georgia adds a detail you should not skip. The rate has to be set by written contract and, for loans under $250,000, expressed in simple interest terms. An installment promissory note that states an annual simple interest rate and a payment schedule covers both points.

How long does a lender have to sue on a promissory note in Georgia?

Six years in most cases. Georgia's version of the Uniform Commercial Code, O.C.G.A. 11-3-118(a), says an action to enforce a note payable at a definite time "must be commenced within six years after the due date or dates stated in the note or, if a due date is accelerated, within six years after the accelerated due date."

A demand promissory note follows subsection (b). If you demand payment, you have six years after the demand to sue. If you never make a demand, the note is barred once neither principal nor interest has been paid for a continuous period of ten years.

Acceleration matters for installment notes. If your note lets you call the full balance due after a missed payment and you do so, the six years run from that accelerated due date instead of the original final due date.

A written loan agreement that is not a negotiable note falls under O.C.G.A. 9-3-24, which says "All actions upon simple contracts in writing shall be brought within six years after the same become due and payable." That section expressly does not apply to negotiable instruments, which use 11-3-118 instead. You can compare deadlines across states with our statute of limitations lookup.

What is Georgia's legal rate of interest?

When a loan has no rate set by written contract, O.C.G.A. 7-4-2 sets the legal rate at 7 percent per year simple interest. If your note says only that the loan carries interest, and you never agreed on a number in writing, expect a court to apply 7 percent. The same statute uses simple interest as its measuring stick throughout, which is why your note should state an annual simple interest rate.

How much interest can you charge on a Georgia loan?

Georgia sets three tiers in O.C.G.A. 7-4-2, based on the principal amount.

For a loan of $3,000 or less, the rate "shall not exceed 16 percent per annum simple interest" unless the loan is made under another law. A $2,000 personal loan at 16 percent simple interest produces $320 in interest over one year, and that is the most you can charge on it for that year. A Georgia Attorney General opinion discusses the same 16 percent simple interest rate for these smaller loans.

For a loan of more than $3,000 but less than $250,000, you and the borrower may set any rate by written contract, as long as it is expressed in simple interest terms as of the date of the note. For a loan of $250,000 or more, you may set any rate by written contract, expressed in simple interest terms or otherwise. Both tiers remain subject to the criminal limit described below.

Businesses that lend $3,000 or less face other rules. The Georgia Department of Banking and Finance (DBF) licenses installment lenders for loans under $3,000, and the state's consumer protection office says payday lending is illegal in Georgia.

What is criminal usury in Georgia?

O.C.G.A. 7-4-18 makes it a misdemeanor to reserve, charge, or take "any rate of interest greater than 5 percent per month" on a loan or forbearance. Five percent per month works out to 60 percent per year of simple interest (5 times 12). On a $10,000 loan, that line sits at $500 per month, or $6,000 over a year.

The statute reaches interest taken directly or indirectly, including through commissions, discounts, notarial or other fees, or any contract, contrivance, or device. It also says nothing in 7-4-2 modifies it, so even a loan of $250,000 or more cannot lawfully exceed 5 percent per month. Licensed pawnbrokers are the stated exception, since their charges fall under a separate statute.

What happens if a Georgia lender charges too much interest?

Under O.C.G.A. 7-4-10, a lender who violates 7-4-2 "shall forfeit the entire interest so charged or taken or contracted to be reserved, charged, or taken." The statute adds that no further penalty or forfeiture applies under that section.

Here is how that works. If you lend $2,500 at 20 percent simple interest, you are over the 16 percent cap for a loan of $3,000 or less. The $500 in yearly interest is forfeited, and you are left collecting the $2,500 principal. The borrower can raise the forfeited amount as a setoff if you sue for the principal, and only full payment of the forfeited amount discharges the forfeiture. A claim for the forfeiture cannot be cut off by any time limit shorter than one year.

Does a Georgia promissory note need to be notarized?

The Georgia limitation and usury statutes discussed here do not list notarization as a condition of an enforceable note. The borrower's signature is what creates the obligation. A notary's acknowledgment still helps you prove the signature is genuine if the borrower disputes it later. Keep the signed original with your payment records, since those documents prove both the debt and the dates that start the six-year clock.

If the loan is backed by real estate or other property, use a secured promissory note and follow the separate signing and recording rules for the security document.

Sources

• Georgia Attorney General, Official Opinion 2003-8 (O.C.G.A. 7-4-2 interest limits)
• Georgia Consumer Protection Division, Payday loans and Georgia usury law