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Secured Promissory Note basics

If you need a loan, or are considering giving one, a Secured Promissory Note can provide security for that loan. The note provides a lot of collateral as the borrower is promising to give up personal property or real estate if the loan isn't repaid. A Secured Promissory Note can help convince a lender to make a loan and ensures the borrower will pay it back by the due date.

Use the Secured Promissory Note document if:

  • You want to borrow money and offer your personal property or real estate as collateral.
  • You want to lend someone money, but want to secure the loan with collateral.

If you're lending money, you probably want something more than the borrower's good word that they'll pay you back—a Secured Promissory Note can help back up that promise. Lending money is a big deal, you want to make sure you'll get paid, and on time.

As a borrower, you may need to provide additional incentive for someone to lend to you. A Secured Promissory Note can help you do just that, but you'd better make sure you can repay the loan since you will have to give up your collateral if you do not.

If you're not looking for a secured note, we also offer standard promissory notes and promissory notes with installment payments.

Other names for this document:

Secured Promissory Note Form, Loan Security Agreement

What does "secured" mean?

The word "secured" means that the loan is backed by an asset put up as collateral. If the loan cannot be repaid the collateral is forfeited to the creditor. A common type of secured loan would be a mortgage—where the loan is secured by the property being purchased.

When do I need a Promissory Note?

A promissory note can be helpful whenever you are lending or borrowing money and want to document the details of the transaction. You should consider getting the details in writing whenever you're entering into a significant agreement. After all, while it's an inconvenience if your friend doesn't pay back the $20 he owes you, it's an entirely different problem if you have disagreements over the original terms of a five-figure loan. Getting the details in writing can help save you headaches down the road.

What should be included in a Secured Promissory Note?

Promissory notes can be as thorough as you want them to be, but there are a few necessities:

  • The amount of the loan and how that money may be transferred.
  • All parties involved and their contact information. Aside from the original borrower and lender, it's important to track any cosigners on the loan.
  • Repayment schedule. With the loan amount set it's also important to specify when the amount is due. If the loan is not due in full at a certain date it can also help to list the required installment payment dates.
  • Any interest on the loan. Interest is a critical aspect of a loan; therefore, any rates should be detailed in the original agreement.
  • The details of the collateral. Include information such as agreed upon value of the collateral, who holds the collateral until the loan terms are met and details of the transfer of collateral if necessary.
  • Signatures. A contract isn't worth much unless both parties agree to the terms and sign the document.
  • The "what ifs." A lot can happen during the lifetime of a loan: late payments, default and forbearance. Try to anticipate possible issues in advance to avoid major problems with the loan later.

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Sample Secured Promissory Note

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