Promissory Note Template – Simple, Clear, and Free
If you are lending or borrowing money, even with someone you trust, it's important to put the agreement in writing. A Promissory Note is a simple document that explains who owes money, how much, and how it will be paid back. It helps prevent confusion and protects both sides. Below, you'll find a clear explanation of what a Promissory Note is, when you might need one, and how to use our free template.
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Table of Contents
What Is a Promissory Note?
- The amount borrowed
- The date repayment starts and ends
- Any interest charged
- What happens if payments are late or missed
Because it is signed by both the borrower and the lender, the Promissory Note acts as proof that money was lent and must be repaid. In many cases, it can be used in court if a dispute arises.
When Do You Need a Promissory Note?
Without a written note, memory fades, misunderstandings happen, and relationships can be damaged. A Promissory Note reduces the chances of conflict by setting clear expectations.
What Happens If You Don't Use a Promissory Note?
No clear record of the loan. Later, one side may say the money was a gift, not a loan.
Disputes about terms. Without written repayment dates, the borrower may feel less urgency to pay back.
Limited legal protection. In court, it's much harder to prove there was a loan agreement if nothing was written down.
How to Fill Out a Promissory Note
Filling out a Promissory Note does not require a lawyer. Our template is written in simple terms, and here is what you'll need to include:
- Step 1: Names of the borrower and lender.
Clearly write who is giving the money and who is receiving it.
- Step 2: Loan amount.
State exactly how much money is being borrowed.
- Step 3: Repayment terms.
Decide whether payments will be made in one lump sum or in regular installments (monthly, quarterly, etc.).
- Step 4: Interest rate (if any).
Some loans are interest-free; others charge interest. If interest applies, write the rate clearly.
- Step 5: Due dates.
List when the first payment is due and the final deadline.
- Step 6: Consequences of late or missed payments.
For example, late fees or higher interest.
- Step 7: Signatures.
Both borrower and lender must sign and date the document.
Example of a Common Confusion: Interest vs. No Interest
One common misunderstanding is whether loans between friends should include interest. Many people assume interest only applies to banks, but even between family members, interest can be included. If you agree on no interest, the note should explicitly say "This loan is interest-free."
Common Mistakes to Avoid
- Leaving Out the Repayment Schedule
A vague note that says "I'll pay you back soon" doesn't help either party. Always include clear dates.
- Forgetting About Partial Payments
Borrowers sometimes want to make smaller payments as they go. If you allow this, the note should say whether partial payments are accepted and how they will be applied.
- Not Including Late Payment Rules
Life happens, and sometimes borrowers miss deadlines. Without rules in the note, there's no agreed way to handle late payments. Even a simple line like "$25 late fee after 10 days" makes expectations clear.
- Not Keeping a Copy
Both borrower and lender should keep a signed copy. It doesn't matter if it's digital or on paper, but both should have access to it.
- Secured Note:
The borrower promises something valuable (like a car or jewelry) as collateral. If they don't repay, the lender can claim that item.
- Unsecured Note:
There is no collateral. The lender relies on the borrower's promise alone.
For personal loans between friends and family, unsecured notes are more common. However, for larger amounts, a secured note gives the lender extra protection.
Related Documents
When creating a Promissory Note, you may also find these documents helpful:
- Loan Agreement
A longer, more detailed version of a Promissory Note, often used for larger sums.
- IOU Form
Less formal than a Promissory Note; good for very small loans.
- Bill of Sale
If you’re lending money to help someone buy an item (like a car), a bill of sale can accompany the note.
Frequently Asked Questions
Is a Promissory Note legally binding?
Yes. As long as both parties sign the document, it is a legally binding contract. If repayment does not happen as agreed, the lender can take the note to court.
Do I need a lawyer to create one?
No. Lawyers can help with complicated loans, but for personal loans, you can use a template. What matters most is that both parties understand and agree to the terms.
Can I cancel a Promissory Note?
If both parties agree, you can cancel the note by writing and signing a statement that the debt is forgiven. Without agreement, the borrower is still obligated to repay.
What if the borrower refuses to sign?
If the borrower won't sign, you should not lend the money. A Promissory Note only works if both parties agree in writing.
Can I charge interest on a personal loan?
Yes, but check your state's maximum interest rate laws (called usury laws). Many personal loans are interest-free, but if you add interest, it must be reasonable and legal in your state.
Do both parties need a witness or notary?
In most cases, a witness or notary is not required, but it can add extra security. For larger loans, having a notary verify the signatures makes the document even stronger in court.
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