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Promissory Note

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Learn more about Promissory Note

Whether you're borrowing money or providing a loan to someone else, a Promissory Note is a great way to establish a record of the transaction and make sure that repayment terms, for example, are clear and fair. With a Promissory Note, you can outline all of the terms and conditions of the loan, so be sure to get it done before money changes hands.

  • 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.

Promissory Note Form, Note, Note Payable Form

While you might not need a promissory note when you let your friend borrow ten dollars for lunch, it's a great idea to put bigger loans in writing.

Just like every lender and borrower are different, every loan is different. Our step-by-step promissory note interview allows you to tailor your document to the specifications of your particular loan. Here are a few things to keep in mind:

In a promissory note, you have several different options when you're structuring repayment.

  • Lump Sum: The most straightforward repayment type. Lump sum simply means that the borrower will repay the lender in full with a single payment. You can select a specific date this sum is due or even select "due on demand."
  • Due on Demand: Simply put, this means that a borrower will have to repay the lender when the lender says so. Generally, the borrower is given a reasonable amount of time before a demand is made and, if the lender so chooses, the buyer can be given the option to make initial payments before demand.
  • With interest: You can structure a promissory note to include a monthly interest rate. Note that repayments will be applied to the interest due first, and the principal (or original amount borrowed) after. If a note isn't repaid by a specific date, the lender has the option of selecting an increased interest rate moving forward.
  • Be polite: This might seem a little odd, but it shouldn't. Generally, borrowers truly do want to repay their loans. After all, nobody likes feeling beholden. But life can get in the way. Perhaps a borrower had an emergency surgery or needed a new transmission and can't pay when promised. If you ask nicely for repayment and the borrower has a good reason they can't quite make good when they agreed to, consider being a little lenient. They'll thank you for it and be all the more inclined to pay in full. Meeting someone halfway can really go a long way.
  • Ask for payment in writing: If being nice doesn't cut it, consider sending a past due notice. These notices create a paper trial in the unfortunate event your loan ends up in court and it will show your borrower you're serious. Make sure you keep copies of these past due notices. Commonly, notices are sent at monthly intervals, so we have 30 Day, 60 Day, and 90 Day Past Due Notices for when you need them.
  • Use a Debt Settlement Agreement: Even if your borrower wants to repay you in full, there's always the chance that they simply cannot. And, depending on the sum and how much you value your own time, going to court might not be an option. Rather than writing your loan off as a loss, consider using a debt settlement agreement. In this document, you can restructure the payment scheme, change the amount owed or the amount of time the borrower has to pay you. And while few people ever want to use a debt settlement agreement, something is certainly better than nothing.
  • Call a debt collector: When worse comes to worse, it's time to call a professional. Debt collection agencies are most often used when a business needs to be repaid, though they will take a cut of the payment, either as a lump sum or percentage. This varies by state and by agency. Other times, depending on the type of promissory note or wealth of the buyer, you'll "sell" your debt to a collector and they will collect what they can. You'll sell that debt at a reduced rate, of course.


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