State specific terms of a loan and repayment: Promissory Note
What is a Promissory Note?
Easy to build, a Promissory Note is an effective way for any lender to record the terms and conditions of their arrangement with a borrower, whether a family member, friend or total stranger. By accepting this agreement, you and the borrower are more likely to hold the same set of expectations when it comes to repayment of the loan. Different from the other sites you may come across, there's more that Rocket Lawyer offers besides Promissory Note templates. In the event of nonpayment or another problem, your Premium membership offers optional access to Document Defense® protection.
When to use a Promissory Note:
- You plan to loan money to another person or business, and would like to formalize the agreement.
- You're looking to borrow money from a private party or a business, and you'd like to get all the terms in writing.
- You're involved in a loan that includes interest, and you wish to prepare an amortization table for both parties.
- You need a written record determining the amount of a monthly loan payment.
- You've been asked to create a Promissory Note on behalf of a lender and borrower to outline the terms of a loan.
Sample Promissory Note
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| Date: |
For value received, the undersigned of , , (the "Borrower"), promise to pay to the order of of , , (the "Lender"), the sum of with .
. TERMS OF REPAYMENT
. Payments
THE BORROWER UNDERSTANDS THAT THE PAYMENT OF THE ABOVE INSTALLMENT PAYMENTS MAY NOT FULLY AMORTIZE THE PRINCIPAL BALANCE OF THE NOTE, AND THEREFORE, A BALLOON PAYMENT MAY BE DUE ON THE DUE DATE.
. Application of Payments
All payments on this Note shall be applied first in payment of accrued interest and any remainder in payment of principal.
This Note is secured by personal property in a . This Note shall be secured by a to real property commonly known as , , . Any such prepayment shall be applied against the installments of principal due under this note in the inverse order of their maturity and shall be accompanied by payment of accrued interest on the amount prepaid to the date of prepayment.
. COLLECTION COSTS
If any payment obligation under this Note is not paid when due, the Borrower promises to pay all costs of collection, including reasonable attorney fees, whether or not a lawsuit is commenced as part of the collection process.
. DEFAULT
If any of the following events of default occur, this Note and any other obligations of the Borrower to the Lender, shall become due immediately, without demand or notice:
1) the failure of the Borrower to pay the principal and any accrued interest when due;
2) the liquidation, dissolution, incompetency or death of the Borrower;
3) the filing of bankruptcy proceedings involving the Borrower as a debtor;
4) the application for the appointment of a receiver for the Borrower;
5) the making of a general assignment for the benefit of the Borrower's creditors;
6) the insolvency of the Borrower;
7) a misrepresentation by the Borrower to the Lender for the purpose of obtaining or extending credit; or
8) the sale of a material portion of the business or assets of the Borrower.
assets pledged as security real estate pledged as collateral
. SEVERABILITY OF PROVISIONS
If any one or more of the provisions of this Note are determined to be unenforceable, in whole or in part, for any reason, the remaining provisions shall remain fully operative.
. MISCELLANEOUS
All payments of principal and interest on this Note shall be paid in the legal currency of the United States. The Borrower waives presentment for payment, protest, and notice of protest and demand of this Note.
No delay in enforcing any right of the Lender under this Note, or assignment by Lender of this Note, or failure to accelerate the debt evidenced hereby by reason of default in the payment of a monthly installment or the acceptance of a past-due installment shall be construed as a waiver of the right of Lender to thereafter insist upon strict compliance with the terms of this Note without notice being given to Borrower. All rights of the Lender under this Note are cumulative and may be exercised concurrently or consecutively at the Lender's option.
This note may not be amended without the written approval of the holder.
. GOVERNING LAW
This Note shall be construed in accordance with the laws of the
. SIGNATURES
This Note shall be signed by on behalf of , and on behalf of .
[SIGNATURE PAGE FOLLOWS]
IN WITNESS WHEREOF, this Agreement has been executed and delivered in the manner prescribed by law as of the date first written above.
Signed this _____ day of _______________, _____, at ___________________________, _________________________ .
Borrower:
| By: | Date: |
Lender:
| By: | Date: |
| on behalf of |
Dated: _________________________
By:____________________________________________________
| on behalf of |
The is secured by collateral pledged by the Borrower. Therefore, a Security Agreement should be signed by the parties in addition to the .
and fail fails or and and
Promissory Note FAQs
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How do I get a Promissory Note online?
It's very easy to document the terms of your loan with a free Promissory Note template from Rocket Lawyer:
- Make the document - Answer a few basic questions and we will do the rest
- Send and share - Go over the document with the other party or get legal advice
- 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.
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When should I use a Promissory Note?
- 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.
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What does a Promissory Note do?
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.
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What is included in a Promissory Note?
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?
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Is a handwritten promissory note legal?
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.
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What is fair interest rate to charge a friend or family member?
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.
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Should I ask for collateral to secure a personal loan?
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.
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Should I loan money to friends or family?
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).
