Promissory Note

Clients Rate Lawyers on our Platform 4.9/5 Stars
based on 3,979 reviews

Jump to Section

Need help with a Promissory Note?

CREATE A FREE PROJECT POSTING
Post Project Now

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.

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.

Promissory Note Templates

Purchase and download fillable PDF templates that match your Promissory Note needs.
Simple Promissory Note
Used for simple lending with repayment.
Real Estate Promissory Note
Used for lending with real estate as collateral.
Personal Loan Promissory Note
Used for lending with friends and family.
Vehicle Promissory Note
Used for lending money to purchase car.
Commercial Promissory Note
Used for commercial lending.
Investment Promissory Note
Used to raise capital for a business.
*By purchasing a template, you acknowledge that you have read and understood ContractsCounsel's Terms of Use.

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 when writing 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.
  • 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 a promissory note to be legally enforceable, the document needs the signature of each party.

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.

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.

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.

Meet some lawyers on our platform

Gregory B.

80 projects on CC
View Profile

Wendy C.

2 projects on CC
View Profile

Bryan B.

97 projects on CC
View Profile

Todd H.

2 projects on CC
View Profile

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.

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.

How ContractsCounsel Works
Hiring a lawyer on ContractsCounsel is easy, transparent and affordable.
1. Post a Free Project
Complete our 4-step process to provide info on what you need done.
2. Get Bids to Review
Receive flat-fee bids from lawyers in our marketplace to compare.
3. Start Your Project
Securely pay to start working with the lawyer you select.

Meet some of our Promissory Note Lawyers

Michael M. on ContractsCounsel
View Michael
5.0 (95)
Member Since:
September 9, 2022

Michael M.

Principal
Free Consultation
Get Free Proposal
Los Angeles
36 Yrs Experience
Licensed in CA
NYU

I am an experienced contracts professional having practiced nearly 3 decades in the area of corporate law and nearly a decade in the investment and finance arena. I enjoy providing a cost effective, high quality and timely solution to client needs. This includes any form of contract a business may encounter, start-up matters, financings, informal dispute resolution, as well as mergers and acquisitions. I graduated from NYU Law School. I have worked at top Wall Street firms, top regional firms as well as long term experience in my own practice. I would welcome the opportunity to be of service to you as a trusted fiduciary.

Spencer R. on ContractsCounsel
View Spencer
5.0 (1)
Member Since:
September 15, 2022

Spencer R.

Partner
Free Consultation
Get Free Proposal
New York
27 Yrs Experience
Licensed in NY
Washington College of Law at American University

I am an experienced attorney working in New York specializing in transactional work, tax structuring and contracts.

Charlton M. on ContractsCounsel
View Charlton
5.0 (6)
Member Since:
September 19, 2022

Charlton M.

Attorney
Free Consultation
Get Free Proposal
Dallas, TX
9 Yrs Experience
Licensed in TX
University of St. Thomas School of Law

Charlton Messer helps businesses and their owners with general counsel and contract drafting services. He has helped over 500 businesses with their legal needs across a variety of industries in nearly a decade of practice.

Max L. on ContractsCounsel
View Max
Member Since:
September 18, 2022

Max L.

Attorney
Free Consultation
Get Free Proposal
Fort Lauderdale, Florida
17 Yrs Experience
Licensed in FL
The Benjamin N. Cardozo School of Law

Hi there. My practice focuses on several aspects of business law, including business entity formation and organizational documents, trademark and copyright, tax disputes, and contracts. I work with quite a few creative entrepreneurs, such as photographers, artists, and musicians.

Erdal T. on ContractsCounsel
View Erdal
Member Since:
September 15, 2022

Erdal T.

Owner, CEO and Managing Attorney
Free Consultation
Get Free Proposal
New Jersey
17 Yrs Experience
Licensed in NJ, NY
New York Law School

Erdal Turnacioglu of Erdal Employment Law focuses on providing employment solutions to both employees and businesses, whether through litigation, review of employee handbooks, workplace investigations, or training seminars.

Dragan "Dan" I. on ContractsCounsel
View Dragan "Dan"
Member Since:
September 21, 2022

Dragan "Dan" I.

Managing Attorney
Free Consultation
Get Free Proposal
Chicago, Illinois
24 Yrs Experience
Licensed in IL
University of Illinois College of Law

DRAGAN DAN IVETIĆ received a bachelor’s degree in philosophy from Northwestern University in 1996 and went on to the University of Illinois College of Law where he received a Juris Doctorate in 1999, and has been practicing law ever since then. Dragan is currently licensed and authorized to practice before the Illinois courts all the way up to the Illinois Supreme Court, and the United States’ District Court for the Northern District of Illinois. Internationally he is 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. His practice has led him across the United States, Europe, and Africa. Dragan has been sought and/or retained for international work alongside local counsel in several European countries, as well as Australia and Africa in private legal matters. Since 2009 he has owned his own law firm continuing with both a domestic and international practice including Trial litigation (including Commercial, Premises Liability, Personal Injury, Criminal Defense, and General Litigation), as well as Transactional work (Contracts, Corporate formation, and Real Estate Transactions). His international practice has included both civil matters and criminal defense, before both the UN ICTY, UN IRMCT, and State Court of BiH. He is a past President of the ADC-ICT (the Official Bar Association of Practitioners before the UN ICTY and UN IRMCT in The Hague) and current officer. He has been involved in multiple ICTY/IRMCT cases. He is also Chair of the ICCBA Defence Committee (the Official Bar Association of Practitioners before the ICC in The Hague). Mr. Ivetić has also been a long-standing member of the ADC-ICT training committee, and served as an instructor/lecturer on Oral Advocacy and Trial Practice for the participants of the ADC-ICT & ICLB Mock Trial since 2014, and has 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. Dragan's practice at this law firm continues with the same diligence and zeal in domestic cases as shown for international cases, with a focus on Trial and Appellate litigation, as well as Transactional work. Perhaps you have a legal matter important to you, or have a loved one that has such a legal matter. Sign up for a free consultation and see if your case will be Dragan's next project. His current firm also is affiliated with the Kansas-Based law firm of Warrior Lawyers International - Kerns Law Group. Through Warrior Lawyers International he and his colleagues have been sought and/or retained for international work alongside local counsel in several European countries, as well as Australia and Africa.

Tina T. on ContractsCounsel
View Tina
Member Since:
October 1, 2022

Tina T.

Attorney
Free Consultation
Get Free Proposal
New Mexico
1 Yr Experience
Licensed in NM
Arizona Summit Law School

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.

Find the best lawyer for your project

Browse Lawyers Now

Want to speak to someone?

Get in touch below and we will schedule a time to connect!

Request a call