A promissory note is a legal document that outlines the terms of a loan. It contains information about when payments are due, how much the payments should be, and the interest rate.
This form is sometimes called a note payable because it includes a borrower's written promise to repay a loan in a specific manner.
Who should use this template?
Whether or not you need this form depends on who’s borrowing the money, and who’s lending it. If you are borrowing money from a bank or other financial institution, the lender will usually have a promissory note for you to fill out.
However, if you are borrowing money from an independent source, or if you are thinking about lending a significant amount of money to someone, you may need your own note.
What to include
A promissory note will usually contain the following information:
- The names and addresses of both the lender and the borrower. The borrower's social security number might also be included.
- The amount of the loan, the date of the loan, and the date when the borrower will need to finish repaying the loan.
- How often the borrower is required to make payments.
- Details about any collateral or security on the loan. For example, if the borrower is unable to repay the loan and must surrender collateral, and the collateral is worth more than the remaining amount on the loan, who gets control of the excess money?
- The interest rate. Be sure to check your state's laws on the maximum allowed interest rate so you can be confident that your note payable's terms are in accord with local laws.
- Penalties for missed or late payments.
- The contact information for any outside witnesses who are present when the borrower and lender sign the note payable form.
In some cases, a promissory note will need to be signed by witnesses and notarized.
If the amount of money being borrowed is high—tens of thousands of dollars or more—you might want to have a lawyer review the promissory note before the parties sign it. A legal professional can offer insight into how to make the agreement truly ironclad.
You won’t need to pay any fees to file. In fact, you probably won't need to file the form anywhere at all. Just be sure to keep your personal copy in a safe place.
If you are a lender and the borrower fails to abide by the terms in the promissory note, you will need to file a copy of it with the court system if you decide to take legal action to collect on the loan.