Mississippi Promissory Note: Interest Limits, Collateral, and Penalties

A Mississippi promissory note is a written, signed promise from a borrower to repay a specific sum to a lender, either on demand or by a set date, and it becomes a legally enforceable debt once properly drafted and signed. The document has to be in writing, has to identify the parties and the amount clearly, and has to stay within the state’s interest rate rules. Miss the rate ceiling and Mississippi can strip out every dollar of interest the lender expected to earn, or in the worst case, the principal too.

What the Note Must Contain

Mississippi law requires the note to be in writing, but the statute does not list a rigid set of mandatory fields. In practice, every note should include the full legal names and addresses of both parties, so there is no ambiguity about who owes what to whom. Write the principal amount in words and numerals both (“Ten Thousand Dollars ($10,000.00)”), because a mismatch between the two is one of the easiest disputes to avoid.

Include the effective date, the maturity or final due date, and the agreed interest rate. If repayment is in installments, state the exact payment amount, the day of the month it is due, and what happens if a payment is late. If the full balance is due at once on a future date, say so plainly. Vague dates invite arguments over whether and when a default actually occurred.

Late Fees and Grace Periods

Mississippi does not cap late fees on private promissory notes the way it caps interest. That gives some flexibility, but a court will refuse to enforce a late fee that looks more like a penalty than a reasonable estimate of the lender’s actual cost. A common approach is a flat percentage of each missed payment with a grace period of 10 to 15 days before the fee applies. Put both the fee and the grace period in the note itself.

Acceleration Clauses

An acceleration clause lets the lender declare the entire remaining balance due immediately if the borrower misses a payment or breaks another term of the agreement. Without this language, a lender who sues over a missed installment can only recover that one missed payment, not the full outstanding balance. State exactly which events trigger acceleration and whether the lender must give written notice first.

Interest Rate Limits Under Mississippi Law

Mississippi’s caps depend on who is borrowing, what the loan is for, and how large it is.

The Default and Contract Rates

When a note does not specify an interest rate, the default is 8% per year. If the parties agree in writing to a higher rate, the maximum for a typical personal loan is the greater of 10% per year or 5% above the Federal Reserve’s discount rate on 90-day commercial paper. That written rate is called the contract rate.¹

Higher Ceiling for Business Borrowers

When the borrower is a corporation, partnership, LLC, or other business entity and the loan exceeds $2,500, the ceiling rises to the greater of 15% per year or 5% above the same Federal Reserve discount rate. Those business borrowers are also barred from later raising a usury defense to avoid repayment.¹

The $2,000 Written-Agreement Exception

Here is the rule most people miss. For any loan where the original principal exceeds $2,000, Mississippi allows the parties to agree in writing to any interest rate at all, even one that would otherwise be usurious. Once that written agreement is in place, the borrower cannot later claim usury as a defense. That effectively removes the statutory ceiling for most loans above the threshold and makes the written terms of the note the controlling factor.¹

Residential Real Estate Loans

Loans secured by a lien on residential property follow a separate benchmark. The maximum rate is the greater of 10% per year or 5% above the Monthly Twenty-Year Constant Maturity Index of Long-Term U.S. Government Bond Yields, published by the Treasury Department.¹

Penalties for Charging Excess Interest

Mississippi Code § 75-17-25 creates two tiers of consequences. If the note’s rate exceeds the legal maximum by any amount, the lender forfeits all interest and finance charges, not just the excess. If the rate exceeds the legal maximum by more than 100%, the lender forfeits both the principal and all finance charges, and the borrower can sue to recover anything already paid.² The exposure is asymmetric. A borrower who overpays interest can reclaim it; a lender who overcharges can lose the entire loan.

Securing the Note With Collateral

A promissory note backed by collateral is a secured note. If the borrower defaults, the lender can seize the pledged asset instead of or in addition to suing for the unpaid balance. The description of the collateral matters more than most people realize.

Describing Personal Property

For vehicles, include the year, make, model, and Vehicle Identification Number. For other personal property such as equipment, boats, or jewelry, use serial numbers or identifiers specific enough that no one could confuse the pledged asset with a similar item. These details usually appear in a separate security agreement that the note references.

Describing Real Property

Real estate needs a formal legal description of the kind that appears on the recorded deed, using metes and bounds, lot and block numbers, or a government survey reference. A street address alone is not enough. The note or an attached deed of trust should state that the lender holds a security interest in the property until the debt is fully repaid.

Perfecting the Security Interest

Writing collateral into the note does not, by itself, protect the lender against other creditors. To establish priority, meaning the right to be paid first when the borrower has multiple debts, the lender has to perfect the security interest. For personal property, that usually means filing a UCC-1 financing statement with the Mississippi Secretary of State, listing the debtor’s name, the lender’s name, and a description of the collateral. Errors in the debtor’s name can render the filing ineffective if they prevent searchers from finding it. For real estate, perfection happens by recording the deed of trust or mortgage with the county chancery clerk where the property sits.

Signing, Witnesses, and Notarization

The borrower must sign the note for it to be enforceable. Mississippi does not require notarization on a standard promissory note, but a notarized signature is much harder for the borrower to later attack as a forgery or as signed under duress. Mississippi notaries may charge up to $5 per signature for standard notarial acts, plus up to $25 more when using an electronic notarization system.³

Witnesses are not legally required either, but one or two neutral witnesses signing alongside the borrower can head off disputes later. After execution, the lender keeps the original and gives the borrower a copy.

Electronic Signatures

Mississippi has adopted the Uniform Electronic Transactions Act, which provides that a signature or record cannot be denied legal effect solely because it is electronic.⁴ A borrower can sign a promissory note through a digital signature platform, and that signature carries the same weight as ink on paper. Both parties should keep accessible copies of the electronic record, and the platform should produce an audit trail showing who signed, when, and from where.

How Long You Have to Sue

A lender who waits too long loses the right to enforce the note. Mississippi Code § 15-1-81 sets the clock:

Notes with a fixed due date: six years from the stated due date, or from the accelerated due date if the lender accelerated the loan.⁵
Demand notes where demand is made: six years from the date of the demand.⁵
Demand notes where no demand is ever made: if neither principal nor interest has been paid for ten continuous years, the claim is barred.⁵

The ten-year rule is a quiet trap on informal family loans. If no payments come in and no demand is ever issued, the note eventually becomes unenforceable by operation of law.

Federal Tax Consequences

The IRS pays attention to private loans, and ignoring the tax side of a note can create problems that dwarf the loan itself.

Interest Income Reporting

A lender who receives $10 or more in interest during the year must report it on Form 1099-INT.⁶ Even without the form, the interest is taxable income. Borrowers should keep records showing how much of each payment went to principal versus interest, since interest paid on some qualifying loans is deductible.

Below-Market Loans and Imputed Interest

If the note charges less than the IRS’s Applicable Federal Rate, the IRS may treat the shortfall as imputed interest, meaning phantom income the lender must report even though nothing was actually collected. The AFR is published monthly and varies by loan term. For gift loans between individuals where the total outstanding balance stays at or below $10,000, the imputed interest rules do not apply, so long as the borrower does not use the funds to buy income-producing assets. For gift loans up to $100,000, imputed interest is capped at the borrower’s net investment income for the year.⁷

Forgiven Debt

If a lender cancels or forgives $600 or more of a borrower’s debt, the IRS generally treats the forgiven amount as taxable income to the borrower.⁸ Applicable financial entities such as banks and credit unions must file Form 1099-C. Private individuals lending money may not fall within that definition, but the borrower’s obligation to report the income exists whether or not a form is issued.

Gift Tax

A zero-interest or deeply below-market loan to a friend or family member can be recharacterized as a gift for tax purposes. The annual gift tax exclusion for 2026 is $19,000 per recipient.⁹ If imputed interest or forgiven principal is treated as a gift above that threshold, the lender may need to file a gift tax return, though no tax is typically owed until the lender exceeds the lifetime exclusion of $15 million.¹⁰

1
Justia. Mississippi Code 75-17-1 – Legal Rates of Interest and Finance Charges
2
FindLaw. Mississippi Code 75-17-25 – Meaning of Finance Charge, Exclusion
3
Mississippi Secretary of State. Part 5 Chapter 9 – Fees for Notarial Acts
4
Justia. Mississippi Code 75-12-13 – Legal Recognition of Electronic Records, Signatures
5
Justia. Mississippi Code 15-1-81 – Statute of Limitations for Promissory Notes
6
Internal Revenue Service. About Form 1099-INT, Interest Income
7
Office of the Law Revision Counsel. 26 USC 7872 – Treatment of Loans With Below-Market Interest Rates
8
Internal Revenue Service. About Form 1099-C, Cancellation of Debt
9
Internal Revenue Service. Gifts and Inheritances
10
Internal Revenue Service. Whats New – Estate and Gift Tax