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Making a Promissory Note
A Promissory Note is a legal contract between a lender and a borrower that defines the terms of a loan, including payment details, interest, late fees, any collateral, and more. This agreement also outlines what will happen if the debt is not repaid.
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.
It's very easy to document the terms of your loan with a free Promissory Note template from Rocket Lawyer:
This method is often notably less expensive than hiring and working with a traditional lawyer.
Promissory Note Form, Note Payable Form
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:
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.
It happens. Sometimes you are not paid back according to the agreed upon terms. Relationships are often strained when a friend or family member doesn't pay back their loan. Some choose to write off the debt to avoid confrontation, but if the loan is large, you may really need the money back. Here are a few things you can do to attempt to receive payment, listed from the least intrusive to expressing your legal rights.
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).