A promissory note is enforceable in Arizona when it is a signed, written document containing an unconditional promise by the borrower to pay a specific sum of money, with a stated interest rate, a clear payment schedule, and a maturity date. Arizona promissory note requirements come from two places: ordinary contract law and the state’s version of UCC Article 3, codified as Title 47, Chapter 3 of the Arizona Revised Statutes. The elements themselves are not complicated, but Arizona’s interest-rate statute carries a severe penalty for lenders who misstate or miscollect, so the drafting details matter more than they look.
What Every Arizona Promissory Note Must Contain
No single Arizona statute lists every required element, but a note that omits any of the following risks being unenforceable or losing its status as a negotiable instrument.
- Identified parties. Full legal names and addresses of the borrower (the maker) and the lender (the payee). For a business, use the entity name as registered with the Arizona Corporation Commission.
- Principal amount. The exact dollar amount borrowed, stated in both words and numerals.
- Unconditional promise to pay. A straightforward promise to repay. Conditional language such as “I will pay if my business succeeds” destroys enforceability.
- Interest rate. The agreed rate, in writing. Leaving this blank triggers a 10% statutory default, which is rarely what either party intended.
- Payment schedule. Frequency, installment amount, and due dates. For a single-payment note, the one date it is due.
- Maturity date. The final date the balance must be paid in full.
- Signature. The physical or electronic signature of every person obligated to pay. The lender’s signature is not strictly required for enforceability, though both parties typically sign.
Because a promissory note is a contract, standard contract principles apply on top of those elements. There must be consideration: the lender has to actually provide something of value, usually the loan proceeds, in exchange for the borrower’s promise. A note drafted to document a gift, with no real loan behind it, lacks consideration and cannot be enforced.
Interest Rate Rules and the Forfeiture Trap
Arizona’s interest framework is unusually permissive on its face and unusually punishing in the details. Two statutes do most of the work.
The 10% Default and No Usury Cap
If a note does not state an interest rate in writing, the borrower owes 10% per year on the outstanding balance. That same 10% applies to court judgments where the underlying agreement is silent on a rate. When the parties do put a rate in writing, Arizona imposes no cap. A written note can legally charge 25%, 40%, or whatever rate the borrower agrees to, so Arizona effectively has no usury ceiling for written agreements.1Arizona Legislature. Arizona Code 44-1201 – Rate of Interest for Loan or Indebtedness; Interest on Judgments; Definitions
Overcollect and Lose All Interest
The absence of a cap does not mean lenders can collect whatever they want. Under A.R.S. § 44-1202, a lender who collects more than the rate the parties actually agreed to forfeits all interest on the debt, not just the excess.2Arizona Legislature. Arizona Revised Statutes 44-1202 – Forfeiture of All Interest Upon Obligation Involving Interest Exceeding the Maximum Amount Set by Contract Lend $50,000 at 12% and inadvertently collect at 13% through a calculation error, and every dollar of interest on the loan can be forfeited. The penalty does not require intent. For that reason, the note itself should spell out exactly how interest accrues, whether it compounds, and the order in which payments are applied to principal, interest, and fees.
Secured or Unsecured
Every promissory note is either secured by collateral the lender can seize on default, or unsecured and backed only by the borrower’s promise. The choice affects what the note needs to say and what the lender can do if payments stop.
An unsecured note gives the lender no claim on specific property. On default, the only path is a breach-of-contract suit followed by collection against the borrower’s non-exempt assets through wage garnishment, bank levies, or judgment liens. Arizona exempts certain property, including a homestead and limited personal property, so a judgment does not guarantee full recovery.
A secured note identifies the collateral and the security instrument. For personal property such as vehicles, equipment, or inventory, the lender creates a security interest under UCC Article 9 (adopted in Arizona as Title 47, Chapter 9) and generally files a UCC-1 Financing Statement with the Arizona Secretary of State to establish priority against other creditors. For real property, Arizona uses deeds of trust rather than traditional mortgages. The deed of trust names three parties: the borrower (trustor), the lender (beneficiary), and a neutral trustee who holds the power of sale. It must be recorded at the county recorder’s office in the county where the property is located so later claimants have notice.
Negotiability: When It Matters, When It Doesn’t
A negotiable note can be freely transferred to third parties, and a good-faith purchaser may acquire stronger enforcement rights than the original lender had. If the parties want the lender to keep the ability to sell or assign the note, drafting for negotiability matters. If they want the loan to stay strictly between them, it does not.
Under A.R.S. § 47-3104, a note is a negotiable instrument only if it contains an unconditional promise to pay a fixed amount of money, is payable to a named person (“pay to the order of”) or to bearer, is payable on demand or at a definite time, and does not require the borrower to do anything other than pay money.3Arizona Legislature. Arizona Revised Statutes 47-3104 – Negotiable Instrument That last requirement is where drafters most often slip. Clauses requiring the borrower to maintain insurance, keep collateral in good condition, or grant a security interest are allowed and do not destroy negotiability.4Legal Information Institute (LII). UCC 3-104 – Negotiable Instrument A clause requiring the borrower to perform services or deliver goods on top of paying money does destroy it.
Parties who do not want the note to be transferable can include a conspicuous statement that the note is “not negotiable” or “not governed by Article 3.” That opt-out removes the note from negotiable instrument treatment entirely, even if every other element is met, and keeps the relationship confined to the original borrower and lender.
When a negotiable note is transferred, the current holder endorses it (either on the back or on a signed attachment called an allonge) and physically delivers it. An endorsement naming a specific new holder restricts enforcement to that person. A blank endorsement, which is just a signature, turns the note into a bearer instrument that anyone in physical possession can enforce.
Federal Tax Rules Private Lenders Often Miss
Arizona law decides whether a note is enforceable. Federal tax law creates separate obligations that quietly attach to many private loans.
Imputed Interest on Below-Market Loans
If you lend to a family member, friend, or business associate at little or no interest, 26 U.S.C. § 7872 may treat the loan as if it carried interest at the Applicable Federal Rate (AFR) published monthly by the IRS.5GovInfo. 26 USC 7872 – Treatment of Loans With Below-Market Interest Rates The difference between the stated rate and the AFR, called the forgone interest, is treated as a taxable transfer from lender to borrower and a simultaneous interest payment back from borrower to lender. The lender owes income tax on interest never actually received.
As of April 2026, the AFR ranges from roughly 3.59% for short-term loans of three years or less to 4.62% for long-term loans over nine years, with mid-term rates in between.6Internal Revenue Service. Rev. Rul. 2026-7 – Applicable Federal Rates The rate that applies is generally the one in effect when the loan is made. A $10,000 de minimis exception covers gift loans between individuals when the total outstanding balance stays at or below that amount, but the exception disappears if the borrower uses the proceeds to buy income-producing assets like stocks or rental property.
Form 1099-INT Reporting
Any lender who receives $10 or more in interest during the year must file IRS Form 1099-INT reporting that income, and must also report the interest on their own return.7Internal Revenue Service. About Form 1099-INT, Interest Income Private lenders between family members commonly ignore this, but the obligation does not depend on who the borrower is.
Keeping the Note Enforceable Over Time
Two provisions in the note itself, and one statute outside it, decide how long enforcement remains possible.
Acceleration Clauses
A well-drafted note includes an acceleration clause allowing the lender to declare the entire remaining balance due immediately on default, rather than waiting for each missed installment. Before invoking it, the lender should give the borrower written notice specifying the default and the intent to accelerate. The note itself usually sets the required notice period and any cure window. Skipping notice when the note requires it can invalidate the acceleration.
Six-Year Statute of Limitations
A lender has six years from accrual to sue on a written promissory note. For a lump-sum note, the clock runs from the maturity date. For an installment note with no acceleration, a separate six-year period starts for each missed payment. If the lender accelerates, the six years runs from the acceleration date for the full balance. Missing the deadline ends the right to sue, and Arizona’s choice-of-law provision applies this six-year period even when the parties try to designate another state’s longer limitation period.8Arizona Legislature. Arizona Code 12-548 – Contract in Writing for Debt; Six Year Limitation; Choice of Law
Attorney’s Fees Exposure on Every Note Dispute
Under A.R.S. § 12-341.01, a court may award reasonable attorney’s fees to the successful party in any contested action arising out of a contract.9Arizona Legislature. Arizona Revised Statutes 12-341.01 – Recovery of Attorney Fees A promissory note is a contract, so both sides face fee-shifting if a dispute goes to litigation. A lender who prevails can recover legal costs from the borrower, and a borrower who successfully defends against a flawed claim can recover fees from the lender. The statute operates independently of any contractual fee clause, so a note that is silent on attorney’s fees still exposes the losing party to a fee award. Including a specific fees provision in the note can set expectations and sometimes expand what is recoverable, but it is not what creates the exposure.