Jump to Section
What Is a Promissory Note?
A promissory note is a written promise to pay within a specific time period. This type of document enforces a borrower's promise to pay back a lender by a specified period of time, and both parties must sign the document.
A promissory note is not the same as a contract. A contract details all the terms of a legal agreement. A promissory note covers only the following:
- The date by when someone needs to be paid
- How a person or organization needs to be paid
- How much a person or organization needs to be paid
Promissory notes are common documents in any financial service. You've likely signed one if you have taken out any type of loan in the past.
You may also encounter a promissory note referred to as:
- Commercial paper
- Demand note
- IOU
- Loan agreement
- Notes payable
A promissory note establishes a clear record of a loan, either between individuals or between entities. By placing all relevant details in writing, a promissory note ensures clarity on due dates for payments and the amount of payments.
See Promissory Note Agreement Pricing by State
- Alabama
- Alaska
- Arizona
- Arkansas
- California
- Colorado
- Connecticut
- Delaware
- District of Columbia
- Florida
- Georgia
- Hawaii
- Idaho
- Illinois
- Indiana
- Iowa
- Kansas
- Kentucky
- Louisiana
- Maine
- Maryland
- Massachusetts
- Michigan
- Minnesota
- Mississippi
- Missouri
- Montana
- Nebraska
- Nevada
- New Hampshire
- New Jersey
- New Mexico
- New York
- North Carolina
- North Dakota
- Ohio
- Oklahoma
- Oregon
- Pennsylvania
- Rhode Island
- South Carolina
- South Dakota
- Tennessee
- Texas
- Utah
- Vermont
- Virginia
- Washington
- West Virginia
- Wisconsin
- Wyoming
When Should I Use a Promissory Note?
A promissory note is commonly used for the following transactions:
- Business loans
- Car loans
- Mortgages
- Personal loans among friends or family
- Student loans
If you are lending a person or a business money, you may want to formalize the loan by creating a promissory note. A promissory note is especially important if you are lending a large amount of money. The promissory note functions as a legal record of your loan, helping to protect you and to ensure that a person or organization repays you.
Common types of promissory notes include the following:
- Commercial: These notes are more formal and detail specific conditions of a loan.
- Investment: A company can decide to issue a promissory note to raise capital. The company can also sell these notes to other investors.
- Personal or informal: These notes generally involve one family member or friend loaning a sum of money to another family member or friend.
- Real estate: These notes accompany a home loan or other real estate purchase.
What Should I Include in a Promissory Note?
A promissory note should include all terms and details to which both parties of a loan are agreeing. Since every state has its own laws governing the essential components of a promissory note, you'll want to verify the laws of your state. State-specific laws can greatly impact the enforceability and terms of a promissory note.
Important details any promissory note should state include the following:
- Payor or borrower: Include the name of the party who promised to repay the stated debt
- Payee or lender: Include the name of the lender, the person or entity, lending the money
- Date: List the exact date the promise to repay is effective
- Amount or principal: State the face amount of the money borrowed
- Interest rate: If the loan involves interest, the promissory note should include the interest rate charged. The interest rate may be simple or compounded. There are usury laws in many jurisdictions that limit the amount of interest a lender can charge for a loan.
- Date first payment is due: A common arrangement is to have the first payment due on the first day of the month and subsequent payments due on the first date of the following months.
- Details of each payment: If multiple payments are due, the promissory note should include how often payments will be made as well as the amount of each payment.
- Date the promissory note ends: In the case of an amortized loan, a loan paid off in a series of even and equal payments on a specified date, the date the note ends could be the last payment. An agreement could also involve a balloon payment, specifying a date on which the entire unpaid balance is due.
- Signatures: Make sure signatures of both the borrower and the lender are included on the promissory note. For most jurisdictions, a promissory note needs signatures to be legally enforceable. It is worth noting that some jurisdictions may enforce a promissory note even if only signed by the borrower, provided other conditions are met.
Types of Promissory Notes
Different types of promissory notes are appropriate for different types of agreements. You should create your promissory note to fit the type of transaction in which you're involved. Promissory notes can be as simple as a one-time payment from a friend. Transactions such as car loans and mortgages require more complex promissory notes that cover details such as amortization schedules, interest rates, and more.
Types of promissory notes include the following:
- Simple promissory note
- Demand promissory note
- Secured promissory note
- Unsecured promissory note
Simple Promissory Note
If you're writing a promissory note for a lump sum repayment, you'll typically use a simple promissory note. An example is lending your sibling $2,000. Your sibling agrees to pay you money back by January 1. A simple promissory note will state the full amount is due on the stated date; you won't need a payment schedule. You can decide whether to charge interest on the loan amount and include the interest in the document if needed.
Demand Promissory Note
A demand promissory note makes payment due when the lender asks for the money back. You will typically need to provide a reasonable amount of notice to use this type of promissory note.
Secured Promissory Note
A secured promissory note secures the amount loaned with an asset of value, for example, a home or vehicle. If the borrower does not pay back the loan amount within the agreed-upon time frame, the lender has the right to seize property of the borrower. This often involves a legal process the lender needs to go through in order to seize the property.
For example, when you buy a house, the house is collateral on your mortgage. Your bank can seize your home if you do not make stipulated payments by way of a legal process.
Unsecured Promissory Note
This type of promissory note does not allow the party lending the money to secure an asset for the loan. If the borrower does not make the payment, the lender must instead file in small claims court or go through other legal processes to enforce the note.
What Happens When a Promissory Note Is Not Paid?
Promissory notes are legally binding documents. Someone who fails to repay a loan detailed in a promissory note can lose an asset that secures the loan, such as a home, or face other actions.
You have a few options if someone who has borrowed money from you does not pay you back. First, you should ask for the repayment in writing. A written reminder might be all you need to do to get your money paid back. Past due notices are commonly sent at 30, 60, and 90 days after the stated due date.
If the borrower still does not pay you back, you might consider asking your borrower to make a partial payment. You can create a debt settlement agreement if you decide to accept partial repayment of a debt. You may also consider creating an extended payment plan that allows the borrower to pay you back in full over a revised period of time.
You can also choose to use a debt collector to obtain repayment. A debt collector works with you to collect the note, generally taking a percentage of the payment. Alternately, you can sell the note to a debt collector. Selling a note to a debt collector gives the debt collector ownership of the loan and the ability to collect the full amount. It is more common to assign debt to a debt collector, though.
If nothing else works, you can also sue your borrower for the full amount owed to you.
When writing a promissory note, make sure to include all important details to protect yourself. Get in touch with an experienced lawyer for help drafting your document.
Meet some of our Promissory Note Lawyers
Anand A.
Anand is an entrepreneur and attorney with a wide-ranging background. In his legal capacity, Anand has represented parties in (i) commercial finance, (ii) corporate, and (iii) real estate matters throughout the country, including New Jersey, Pennsylvania, Delaware, Arizona, and Georgia. He is well-versed in business formation and management, reviewing and negotiating contracts, advising clients on financing strategy, and various other arenas in which individuals and businesses commonly find themselves. As an entrepreneur, Anand is involved in the hospitality industry and commercial real estate. His approach to the legal practice is to treat clients fairly and provide the highest quality representation possible. Anand received his law degree from Rutgers University School of Law in 2013 and his Bachelor of Business Administration from Pace University, Lubin School of Business in 2007.
Benjamin E.
Benjamin is an attorney specializing in Business, Intellectual Property, Employment and Real Estate.
Julian H.
I am a business attorney with years of experience advising individual entrepreneurs and small businesses on issues ranging from entity selection/formation to employment law compliance, to intellectual property protection and exploitation. I often act as General Counsel for my clients fulfilling the legal function as part of a team of managers. I look forward to learning more about your business and how I may be of assistance.
Dan "Dragan" I.
I received a bachelor’s degree in philosophy from Northwestern University in 1996 and then got my JD at University of Illinois College of Law in 1999. I have been a lawyer helping people with legal issues in the United States and Internationally since then. That includes litigation as well as contracts/transactions. I am also passionate about helping small and medium businesses with trademark registration and trademark-related legal projects. The law can be confusing and complicated for people, and I am passionate about providing professional legal services to my clients while simultaneously making the legal process less confusing and stressful for them. My goal is to help clients navigate through both good and difficult times by tailoring my skills, experience, and services to their specific needs. I am currently licensed and authorized to practice before the Illinois courts and the United States District Court for the Northern District of Illinois. Internationally I am one of a select few American attorneys licensed and authorized to practice before the United Nations ICTY/IRMCT, the International Criminal Court, and the State Court of Bosnia-Herzegovina. Clients have retained me internationally alongside local counsel in several European countries, Australia, and Africa in private legal matters. I have also been appointed by the United Nations to represent persons at the ICTY/IRMCT and chosen by indigent accused to represent them. Since 2009 my law firm has handled domestic and international cases, including Trial litigation (including Commercial, Premises Liability, Personal Injury, Criminal Defense, and General Litigation) and Transactional work (Contracts, Corporate formation, and Real Estate Transactions). I enjoy helping less experienced practitioners and students evolve and improve. I served as an instructor/lecturer on Oral Advocacy and Trial Practice for the participants of the ADC-ICT & ICLB Mock Trial since 2014, and have presented Advocacy Training lectures for the ADC-ICT on several topics as well as regularly lecturing to visiting University and Bar groups from around the world. If you or a loved one have a legal matter of importance, let's see if I can help you with it!
Valerie L.
Current practice includes: employment law, family law, business law and personal injury.
October 1, 2022
Tina T.
I am a New Mexico licensed attorney with many years of world experience in real estate, transactional law, social security disability law, immigration law, consumer law, and estate planning.
December 27, 2022
Brent W.
Brent has been in practice since 2007 and been the principal attorney and owner of The Walker Firm, LLC since 2014. Brent focuses on providing an array of general counsel services to individuals and companies in a variety of industries.
Find the best lawyer for your project
Browse Lawyers NowDispute
Promissory Note
Florida
I have a issue with a borrower that has broke a promissory note. What can I do to recover my money legally?
I agreed to loan someone money and made a promissory note saying he will agree to pay the money in montly installments and interest if late plus legal fees if moneybis not paid. Its been close to a year have received not one penny. I'am looking for legal advice as I never been this far with this, as most people have always paid me back.
Donya G.
Yes you can. Did you sign a promissory note? What does it say about disputes over payment? How much money is owed? If you need additional information you can contact me on the website for assistance. Thanks Donya Gordon
Business
Promissory Note
California
What happens to convertible note if startup fails?
I have a startup and am looking to raise money from investors. If we fail, are we going to be liable for anything if we raise money on a convertible note?
Michael M.
Typically, if the business fails, the note can then not be converted or repaid. Unless you have personally guaranteed the obligation which would be unusual, the recourse would be against the entity itself.
Debt
Promissory Note
Illinois
Can you do a promissory note for my tenant?
my tenant owes me $10,400 back rent, she promises to pay me back.
T. Phillip B.
Yes, you could create a promissory note and terms in that note for repayment of back rent. That would create an obligation for her that if she defaults, you'd file as a breach of contract rather than an eviction at that point.
Consumer
Promissory Note
Connecticut
Promissory note termination options?
I recently signed a promissory note with a lender for a loan. I am now concerned that I may not be able to make the payments and am looking for options to terminate the promissory note if necessary. I need to know what my options are, as well as any potential consequences, regarding terminating the promissory note.
Thomas L.
Contact the lender and request a resolution of your loan, that is, some terminating reduction. The lender is under no duty to assist you, and can sue you for the unpaid balance, get a judgment and then seize your property (bank accounts, cars, etc) to get the note repaid.
Dispute
Promissory Note
New York
Breach of contract: Promissory note
Someone owe my money which he took as a loan signing a promissory note. He moved out of Syracuse, NY and know that he is living in the state of Ohio. How can I sue him to collect $7,286? Please help.
Donya G.
Does your promissory note talk about what happens if he doesn't pay? Does the law of NY apply to your agreement? If so, you can sue in NY court. In order to get a firm answer on what to do, I would need to review the promissory note and see what it says. You can connect with me and engage my services through Contracts Counsel. Donya Gordon
Need help with a Promissory Note?
Financial lawyers by top cities
- Austin Financial Lawyers
- Boston Financial Lawyers
- Chicago Financial Lawyers
- Dallas Financial Lawyers
- Denver Financial Lawyers
- Houston Financial Lawyers
- Los Angeles Financial Lawyers
- New York Financial Lawyers
- Phoenix Financial Lawyers
- San Diego Financial Lawyers
- Tampa Financial Lawyers
Promissory Note lawyers by city
- Austin Promissory Note Lawyers
- Boston Promissory Note Lawyers
- Chicago Promissory Note Lawyers
- Dallas Promissory Note Lawyers
- Denver Promissory Note Lawyers
- Houston Promissory Note Lawyers
- Los Angeles Promissory Note Lawyers
- New York Promissory Note Lawyers
- Phoenix Promissory Note Lawyers
- San Diego Promissory Note Lawyers
- Tampa Promissory Note Lawyers
ContractsCounsel User
1-2 page promissory agreement
Location: Texas
Turnaround: Less than a week
Service: Drafting
Doc Type: Promissory Note Agreement
Number of Bids: 7
Bid Range: $495 - $899
ContractsCounsel User
unsecured line of credit promissory note
Location: Florida
Turnaround: A week
Service: Drafting
Doc Type: Promissory Note Agreement
Number of Bids: 2
Bid Range: $250 - $500
related contracts
- Accredited Investor Questionnaire
- Adverse Action Notice
- Bridge Loan
- Bridge Loan Contract
- Collateral Assignment
- Commercial Loan
- Convertible Bonds
- Convertible Note
- Convertible Preferred Stock
- Cumulative Preferred Stock
other helpful articles
- How much does it cost to draft a contract?
- Do Contract Lawyers Use Templates?
- How do Contract Lawyers charge?
- Business Contract Lawyers: How Can They Help?
- What to look for when hiring a lawyer