What is a promissory note?

Promissory Note sample for payment

A promissory note is essentially a written promise to pay someone.

This type of document is common in financial services and is something youve likely signed in the past if youve taken out any kind of loan.

If you decide to lend money to someone, you may want to create a promissory note to formalize the loan.

,Promissory notes may also be referred to as an IOU, a loan agreement, or just a note.

Its a legal lending document that says the borrower promises to repay to the lender a certain amount of money in a certain time frame.

This kind of document is legally enforceable and creates a legal obligation to repay the loan.

,When to Use a Promissory Note?A promissory note is used for mortgages, student loans, car loans, business loans, and personal loans between family and friends.

If you are lending a large amount of money to someone (or to a business), then you may want to create a promissory note from a promissory note template.

This note will be a legal record of the loan and will protect you and help make sure you are repaid.

,What to Include in a Promissory NoteA loan promissory note sets out all the terms and details of the loan.

,The promissory note form should include:,The names and addresses of the lender and borrower,The amount of money being borrowed and what, if any, collateral is being used,How often payments will be made in and in what amount,Signatures of both parties, in order for the note to be enforceable,The collateral referenced above is a property that the lender can seize if the note is not repaid; for example, when you buy a home, the house is the collateral on the mortgage.

,How to Customize a Promissory NotePromissory notes should be created to fit the transaction that you are involved in.

Its always good to refer to a sample promissory note when you are writing one so that you can be sure to include the right language.

There also are different types of promissory notes.

,A simple promissory note might be for a lump sum repayment on a certain date.

For example, you lend your friend $1,000 and he agrees to repay you by December 1.

The full amount is due on that date, and there is no payment schedule involved.

There may or may not be interest charged on the loan amount, depending on what youve agreed.

,A demand promissory note is one in which payment is due when the lender asks for the money back.

Usually, a reasonable amount of notice is required.

,More complicated promissory notes for transactions like mortgages and car loans will also include interest rates, amortization schedules, and other details.

Promissory note for lending money

No.

,A promissory note is just that: A promise to repay.

The reason your friend is asking you to loan him or her money, is because a legitimate bank or lender is not willing to do so.

,This means your friend likely has a history of NOT repaying loans u201cas agreedu201d in that promissory note.

,There are zero reasons why anyone ought loan money to a u201cfriend.

u201d Wait, I can think of one reason: You fully understand that the loan will never be repaid.

,Ask your u201cfriendu201d why he/she is not asking family member for a u201cloan.

u201d,This person is not your friend.

He/she is using you for money.

Find some new friends.