California Unsecured Promissory Note Overview
An unsecured promissory note in California is a loan agreement where the borrower promises to repay without pledging any collateral. The lender relies on the borrower's creditworthiness and the legally enforceable promise to pay. The maximum interest rate in California is 10% (non-exempt).
10% per annum for non-exempt personal loans; no cap for banks, credit unions, or licensed lenders. Unsecured notes carry more risk for the lender, so interest rates are typically higher than secured notes. However, the rate must still comply with California's usury laws.
If the borrower defaults, the lender's primary remedy is filing a lawsuit within California's statute of limitations (2 years (oral), 4 years (written)). The small claims court limit in California is $10,000 ($5,000 for businesses), which is ideal for smaller unsecured loans.
10% (non-exempt)
Usury rate cap
2 years
Statute of limitations
$10,000 ($5,000 for businesses)
Small claims limit
25%
Max garnishment
California Legal Requirements
California has specific requirements for unsecured promissory notes:
Important: California Usury Laws
California's maximum interest rate is 10% (non-exempt). 10% per annum for non-exempt personal loans; no cap for banks, credit unions, or licensed lenders. Exceeding this limit may void the interest or result in penalties.
- Written Agreement: Must be in writing, signed by borrower, clearly stating loan terms
- Compliant Interest Rate: Must not exceed California's 10% (non-exempt) usury cap
- No Collateral Statement: Explicitly state that the note is unsecured with no collateral pledged
- Default Provisions: Events of default, cure period, acceleration clause, and collection remedies
- Personal Guarantee: Recommended for business borrowers to protect the lender
- Governing Law: Specify California law as the governing jurisdiction
Collection Remedies in California
If a borrower defaults on an unsecured promissory note in California, the lender has several collection options:
Send a Formal Demand Letter
Written notice demanding payment within a specified timeframe, creating a paper trail
File in Small Claims Court ($10,000 ($5,000 for businesses) limit)
Fast, affordable, no attorney required for amounts within the limit
File a Civil Lawsuit
For amounts above small claims limits, file in California civil court
Enforce the Judgment
Lesser of 25% of disposable earnings or amount exceeding 40x state minimum hourly wage. Bank account levies and property liens also available
Statute of Limitations in California
The statute of limitations for collecting on a promissory note in California is 2 years (oral), 4 years (written). After this period, the lender loses the right to file a lawsuit to enforce the note.
| Aspect | California Rule |
|---|---|
| Usury Rate | 10% (non-exempt) |
| Statute of Limitations | 2 years (oral), 4 years (written) |
| Small Claims Limit | $10,000 ($5,000 for businesses) |
| Garnishment Rules | Lesser of 25% of disposable earnings or amount exceeding 40x state minimum hourly wage |
Sample California Unsecured Promissory Note
Below is a preview of our California-specific unsecured promissory note template.
STATE OF CALIFORNIA
UNSECURED PROMISSORY NOTE
No Collateral Loan Agreement
LENDER:
Name: [Lender Name]
Address: [California Address]
BORROWER:
Name: [Borrower Name]
Address: [California Address]
LOAN TERMS
Principal: $[Amount]
Interest: [Rate]% per annum (max 10% (non-exempt) in CA)
This note is UNSECURED. No collateral has been pledged.
California Unsecured Promissory Note FAQ
Answers to common questions about unsecured promissory notes and collection procedures in California.
Official California Resources
Use these official resources for California lending laws and court procedures.
Other California Promissory Note Types
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