A promissory note is a legal instrument that documents one person’s promise to pay a sum of money to another.
- Making a loan to another person or business
- Borrowing money from another person or business
A promissory note records a financial transaction that involves repayment upon a debt. The promissory note will include all relevant details of a debt, including the date by which the debt must be repaid, any fees or interest that may apply, the parties involved in the transaction, and all other terms and conditions of the loan. Many common financial transactions require a promissory note as a matter of law or best practice. In fact, you’ve almost certainly executed a promissory note if you’ve ever taken out a mortgage. Because it is so common, a promissory note is a financial instrument that everyone should be aware of. Regardless of whether you are the borrower or the person making the loan, promissory notes are an effective way to formalize a repayment agreement between two parties. There are several laws regulating financial transactions involving debt. Most states have passed laws – known as usury statutes – that penalize lenders for charging excessively high-interest rates. Penalties for violation of state usury laws can be as extreme as the complete forfeiture of the loan, so both debtors and lender are wise to be aware of the rights and limitations that apply to them. Use this interactive form to draft a promissory note that is accurate, complete, and suits your financial needs.