Promissory Note Template
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A promissory note template is a legal document that records a borrower’s promise to pay back a loan. This promise to pay agreement can be used in personal and business transactions, offering financial protection for both parties.
Why Is a Promissory Note Important?
Standard promissory notes are helpful when:
Legal clarity — Clearly defines the loan terms and conditions;
Proof of debt — Protects both lender and borrower in case of disputes;
Flexible repayment options — Allows for custom schedules and terms;
For individuals or businesses engaging in loans, a promissory note sample ensures that both parties understand and acknowledge the financial commitment.
When Is a Promissory Note Used?
A promissory note template is useful in various financial situations, from personal loans between friends to large corporate transactions. Some of the most common situations include:
1. Personal loans
When lending money to a friend, family member, or colleague, a promise to pay agreement can help set clear expectations. Without a written agreement, repayment terms may be forgotten, leading to disputes. A properly drafted simple promissory note sample protects both parties and ensures fairness.
2. Business loans
Businesses often use a promissory note PDF when borrowing money from investors, banks, or other lenders. These notes serve as a formal recognition of debt while outlining repayment terms.
3. Real estate transactions
When purchasing property, buyers may use a promissory note to confirm their loan agreement with the seller or financial institution. A promissory note helps outline financing arrangements, ensuring both sides understand their obligations.
4. Student loans & educational lending
Students receiving private loans often sign a standard promissory note detailing their repayment obligations post-graduation. Forms promissory note clarify loan conditions, interest rates, and repayment start dates.
5. Installment purchases & seller financing
A promissory note example is frequently used for installment purchases, such as car financing or business equipment. This arrangement allows the buyer to make payments over time while ensuring the seller is protected in case of non-payment.
How To Fill Out a Promissory Note: Step-by-Step
Step 1: Identify the borrower and lender
This section specifies who is borrowing and who is lending the money.
- Enter the full name of the Borrower (the person taking the loan).
- Write the Borrower’s residential address for documentation.
- Enter the full name of the Lender (the person giving the loan).
- Provide the Lender’s address to ensure clarity.
FOR VALUE RECEIVED, Michael Anderson, an individual having their usual place of living at 674 Pine Street, Portland, OR, (the "Borrower") promises to pay Laura Bennett, an individual having their usual place of living at 890 Sunset Drive, Phoenix, AZ, (the "Lender") the principal sum of $5,000 (the "Principal Amount"), together with interest accrued thereon, if any, under the terms and conditions set forth herein.
Step 2: Define loan amount and interest rate
This section details the financial terms of the loan, including the interest rate.
- Specify the loan amount (Principal Amount).
- Write the agreed-upon interest rate (APR%).
- Ensure the total interest does not exceed legal limits set by state law.
The loan shall accrue interest at the rate of 5% per year (the "Interest Rate" or the "Accrued Interest"). However, the total interest accrued on the Principal Amount shall not exceed the maximum limit allowed by law, and the Borrower shall not be obligated to pay interest beyond that amount.
Step 3: Specify the payment terms and maturity date
The Maturity Date specifies when the loan must be repaid in full, including terms for repayment.
- Enter the full repayment date (Maturity Date).
- State the form of payment (e.g., cash, check, bank transfer).
If the Borrower misses a payment, this section outlines the penalty conditions.
- Specify the number of days after the due date before the fee applies.
- Define the late fee percentage charged on overdue payments.
The Principal Amount, along with the Accrued Interest, if any, shall be due and payable on June 1, 2025 (the "Maturity Date").
The Principal Amount, along with the Accrued Interest, if any, shall be paid in full on the Maturity Date by cash.
Late Fee: If the Lender does not receive any payment within 10 days from the Maturity Date, the Borrower shall be liable for a late fee of 3% of the overdue payment amount.
Step 5: Provide signatures for legal validity
Both the Borrower and Lender must sign the loan agreement for it to be legally binding.
- Keep an original signed simple promissory note in a safe place.
- Provide a copy of the blank promissory note to the Borrower and Lender for records.
- Consider notarizing the document for added legal security.
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Frequently Asked Questions
Promissory notes don’t have any legal requirements, and some people write them themselves for simple purposes. To get started, you can use our printable promissory note template. To ensure the note contains all essential elements and is compliant with local laws, you should work with a professional document preparer, such as Lawrina.
There are many types of promissory notes, varying in formality and amount. Student loans and personal loans can both be financed with promissory notes, which serve as a legal record of the borrowed amount and protect the lender if the borrower doesn’t make payments.
Although promissory notes are often simple, they should include the names and addresses of the lender and borrower. This legal document should include the amount borrowed, collateral details, payment terms, and signatures of both parties. Your promissory note should also include interest rates and amortization schedules, along with payment amounts and dates. Please contact your local attorney or law firm for assistance in drafting your promissory note.