MAKE YOUR FREE Promissory Note

It's very easy to document the terms of your loan with a free Promissory Note template from Rocket Lawyer:

1. Make the document - Answer a few basic questions and we will do the rest
2. Send and share - Go over the document with the other party or get legal advice
3. Sign and make it legal - Easily sign the agreement with RocketSign^® electronic signatures

This method is often notably less expensive than hiring and working with a traditional lawyer.

• You want to loan money to a friend or family member and want a signed agreement.
• You want to borrow money from a friend or family member and want to show that you plan to repay the debt.
• You are going to loan money and want to charge interest and need an amortization table.
• You are borrowing money and want to put up collateral to secure the loan.

A Promissory Note is simply a loan agreement. It documents the amount loaned and how it will be repaid. It is often a personal loan between friends or family members, but it can be between businesses as well. This type of Note is a bit more formalized than an IOU or handshake agreement, but easier to obtain than a bank loan.

Promissory Notes do not require a lot of information to make. The Rocket Lawyer document builder automatically generates the legal language for you, you simply need to submit a bit of information to customize it.

Information required to make a Promissory Note include:

• Contact information: for the lenders and the one accepting the loan and co-signer if applicable
• Interest rate: if interest will be changed, the interest rate and a higher rate after late payments if applicable
• How payments will be made: installments plus interest, interest-only payments, lump sum or on demand
• Frequency of payments: how many payments will be made, when payments will be made and balloon payment amount if required
• Late fee: will they be charged and if so, when and how much
• Collateral: if collateral will be applied you'll need to write a description of the property
• Loan sale: can the lender sell the loan?

In most cases, a handwritten Promissory Note signed by both parties will stand up in court. However, using our form is simple and it can incorporate interest and build an amortization table. Plus, our document builder incorporates legal language into the document automatically.

Some people are uncomfortable charging their friends or family members interest for loans, but you may consider at least charging a bit since that money will not be able to work for you in other ways until it is paid back. You can charge whatever interest rate you want, but in general, most choose to charge a bit less than what a bank might charge for a personal loan. Many choose to charge between five and ten percent interest. Many states have usury laws that limit how much you can charge for interest. Even if it is a personal, private loan it is prudent to stay under the usury limit in case you end up in court for nonpayment in the future.

Collateral can sometimes help motivate the person you loan money to, to pay you back. Other times, they may think they don't have to pay you back since you can take their collateral. Before accepting collateral in the terms of the loan, you'll want to evaluate the value of the collateral and maybe even make arrangements to take possession of the collateral until the loan is paid in full. Common items used for collateral include real estate, cars, boats and recreational vehicles.

Most financial advisors would say no. However, each situation is unique. You can never actually know for sure if someone will pay you back. They may lose their job, become ill, or simply choose not to pay you back. Many family disputes have arisen and friendships dissolved over money issues. A few recommendations include to never loan money you cannot afford to lose, to loan money already accepting you may never be paid back, and if you choose to lend money, get it in writing (always, even if it is your own mother).