Is a promissory note legally binding in Ohio?

Yes. A promissory note is legally binding in Ohio when it's a signed, written promise to repay money on stated terms. A lender generally has six years to sue on a note under R.C. 1303.16, and R.C. 1343.01 caps interest at 8 percent per year unless an exception applies, such as a principal amount over $100,000 or a business loan.

What makes a promissory note enforceable in Ohio?

Courts want to see the basic deal on paper. A solid note names the lender and borrower, states the principal, gives the interest rate, explains the repayment terms, and carries the borrower's signature. The due date or payment schedule is worth extra care, because Ohio's limitation periods run from it.

Ohio's usury statute also speaks directly to written instruments. R.C. 1343.01 lets the parties to a promissory note stipulate a rate in the note itself, so put the agreed rate in the note itself.

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

Six years in most cases. Under R.C. 1303.16(A), an action to enforce a note payable at a definite time "shall be brought 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 division (B). Once you demand payment, you have six years after the demand to sue. If you never demand payment, the note is barred once neither principal nor interest has been paid for a continuous period of ten years.

Acceleration counts too. If your note lets you call the whole balance due after a missed payment and you do, the six years run from the accelerated due date. For a lender, that means the deadline can arrive sooner than the note's original final payment date.

You can compare these deadlines with other states using our statute of limitations lookup.

What is the limitation period for other written contracts in Ohio?

R.C. 2305.06 covers written agreements generally. It says "an action upon a specialty or an agreement, contract, or promise in writing shall be brought within six years after the cause of action accrued." The section carves out several other statutes, including R.C. 1303.16, so a negotiable note uses the note-specific rules above.

For a lender, the practical result is the same number either way: six years. What changes is when the clock starts. For a note, it's the due date or the date of demand. For other written contracts, it's when the cause of action accrued, which usually means the date of the breach.

What is the maximum interest rate in Ohio?

R.C. 1343.01(A) lets the parties to a bond, bill, promissory note, or other written instrument agree on interest "at any rate not exceeding eight per cent per annum payable annually", except as division (B) allows. On a $10,000 personal loan, 8 percent simple interest comes to $800 for one year.

If your note doesn't state a rate, R.C. 1343.03 gives the creditor interest at a rate set under a separate statute, R.C. 5703.47, once money becomes due, unless a written contract provides a different rate. That statutory rate changes over time, so write your own rate into the note.

Which Ohio loans are exempt from the 8 percent cap?

Division (B) of R.C. 1343.01 lists the exceptions. The ones private lenders see most are these:

Loans over $100,000. The cap doesn't apply when the original principal stated in the note exceeds one hundred thousand dollars.

Business loans. A loan to a business association, a partnership, a sole proprietor operating a business, or similar business owners is exempt. A loan secured by an assignment of the borrower's wages or by household furniture or other personal goods doesn't count as a business loan for this purpose.

Demand and single-payment notes. The cap doesn't apply when the instrument is payable on demand or in one installment and isn't secured by household furnishings or other goods used for personal, family, or household purposes. A one-payment personal loan with no household collateral falls here. For example, a $5,000 loan to a friend, repaid in a single lump sum after a year and not secured by household goods, isn't bound by the 8 percent cap. The criminal usury line discussed below is a separate question.

Real estate loans. Loans backed by certain federal programs are exempt. Other loans secured by a mortgage, deed of trust, or land installment contract can exceed 8 percent, but only up to 8 percent above the discount rate on ninety-day commercial paper at the Federal Reserve Bank of the fourth district when the loan documents are signed.

What happens if an Ohio lender charges usurious interest?

The civil remedy is in R.C. 1343.04. Payments of usurious interest, to the extent they exceed the lawful rate, are treated as payments on principal, and a court will enter judgment only for the balance left after deducting that excess. On a $10,000 loan at 10 percent for one year, the borrower pays $1,000 in interest, the lawful 8 percent is $800, and the $200 excess comes off the principal.

Ohio also has a criminal usury law. R.C. 2905.21 defines criminal usury as charging interest "at a rate exceeding twenty-five per cent per annum or the equivalent rate for a longer or shorter period", unless another law authorizes the rate or the creditor and debtor are members of the same immediate family. The statute defines immediate family as a spouse living in the household, brothers and sisters of the whole or half blood, and children, including adopted children. Under R.C. 2905.22, knowingly engaging in criminal usury is a felony of the fourth degree.

Does a promissory note need to be notarized in Ohio?

None of the Ohio statutes covered here make notarization a condition of an enforceable note. The borrower's signature creates the obligation. A notary's acknowledgment still makes it harder for a borrower to deny signing later.

If real estate secures the loan, use a secured promissory note and follow the separate signing and recording rules for the mortgage.

Sources

• Ohio Revised Code 1303.16, Statute of limitations (negotiable instruments)
• Ohio Revised Code 2305.06, Contract in writing
• Ohio Revised Code 1343.01, Maximum rate of interest
• Ohio Revised Code 1343.03, Interest when rate not stipulated
• Ohio Revised Code 1343.04, Usurious interest applied to principal
• Ohio Revised Code 2905.21, Criminal usury definitions
• Ohio Revised Code 2905.22, Extortionate extension of credit and criminal usury