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Promissory Note



A promissory note is a legal instrument that documents one person’s promise to pay a sum of money to another.

The phrase “never a borrower or lender be” is a Shakespearean warning that used to be treated as true wisdom. However, as the global economy has evolved significantly over time, especially within the last 50 years or so, it can often be significantly advantageous to lend and/or borrow money. Depending on the unique circumstances surrounding the arrangement, lending and borrowing money can be life-altering experiences. With that said, it remains important to be somewhat cautious when entering into a lending and/or borrowing situation. In order to protect the interests of both parties to a lending contract, it is important to articulate the terms of the arrangement by drafting a promissory note.

Uses

  • Making a loan to another person or business
  • Borrowing money from another person or business

Overview

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.

If you are planning to either lend or borrow money, consider using this customizable promissory note template in order to better ensure that the interests of everyone involved are protected from the start. Even if the lending situation you are going to be a party to only involves your family members, it can be tremendously helpful to outline the terms of the agreement, including a payment schedule, before you transfer money between two parties. That way, everyone involved understands the expectations of the arrangement and all terms are transparent. This kind of proactive documentation can help to minimize tensions between a lender and a borrower and can help to ensure that everyone holds up their end of the bargain without spontaneously choosing to change or neglect the terms of the arrangement.

Please note that if you are entering a scenario in which you are borrowing money from an established corporate lender that your loan provider will almost certainly want to use its own promissory note template to outline the terms of your arrangement.

 

Alternate Names

Note Payable
Promissory Note Form