A promissory note is a legally binding document that sets out the terms under which you, the borrower, agree to repay your loan. By signing this document, you enter into a contractual agreement either with Fortify, or with the third-party bank or credit union that created your loan, which will outline your financial responsibilities. Here are the essential obligations you should know when signing a promissory note.
Repayment of the loan
Your primary obligation when signing a promissory note is your commitment to repay the loan. Your note will clearly specify the total amount you borrowed, your interest rate, and your repayment schedule.
Repayment is typically structured through monthly payments, which include payments that are applied to reducing both your principal and your interest. This consistent payment plan helps you to manage your finances and ensure timely repayment.
Interest
Interest is the cost of borrowing money. Your interest rate will be clearly stated in your promissory note. There are generally two types of interest rates:
Fixed interest rates: rates that remain constant throughout the loan term.
Variable interest rates: rates that change based on market conditions or other factors specified in the note.
You are obligated to pay interest according to the terms outlined, and failure to do so can lead to penalties or increased rates.
Fees
Your promissory note may include various fees, such as:
Origination fees: these are added into your principal, and are charged for processing the loan.
Late payment fees: these may be charged if you miss a scheduled payment.
Returned check charges or NSF fees: these may be charged if you see a payment bounce or otherwise incur a returned payment.
Understanding these fees is crucial, as they could add to the total cost of your loan.
Default and collection costs
Defaulting on a loan means failing to make your required payments. Your promissory note will outline what constitutes a default and the consequences thereof. Potential collection costs that you may be responsible for include:
Legal fees: if Fortify or the holder of your loan takes legal action to recover the amount that you owe.
Collection agency fees: any fees charged by a collection agency, if your loan is returned to one.
Additional interest: defaulting on your loan can sometimes mean higher interest rates, or additional interest charged.
It’s important to note that defaulting can also significantly impact your credit score, which can make it harder for you to obtain credit in the future.
Your rights
While your promissory note details your obligations, it also protects your rights as a borrower. You have the right to:
Receive clear information. Any terms of your financing agreement will be fully disclosed to you before you sign.
Repayment options: options may be available to renegotiate terms if you encounter financial difficulties. Please reach out to your loan servicer for more details.
Legal protections: the protections for borrowers under relevant consumer laws - both federal and state - that prevent unfair practices by lenders.
Summary
Signing a promissory note is a serious financial commitment. You’re agreeing to repay a loan or payment plan according to the specified terms, including the total loan amount, any interest, and any applicable fees.
Understanding these obligations will help you manage your payments responsibly and avoid the negative consequences of default. Always read promissory notes carefully and seek legal or financial advice if you have any questions before signing.