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Understanding Your Promissory Note Template


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Are you intending to lend money to a friend, relative or business associate, but concerned a bit about how, when and even if you’ll be repaid? Have you considered drafting a promissory note and having the recipient of your generosity sign it, thus officially promising that he or she will repay you in a timely fashion? Whether you’re planning to loan or borrow money, you should always have a promissory note of some kind in place. This document serves as a legal contract, one that can be enforced by the courts if either party, particularly the borrower, defaults on the loan. To help you make sure the transaction you are planning will be legally binding, in this article we will spend some time defining the promissory note and highlighting its importance, followed by a list of items to look for when searching online for a promissory note template.

Promissory Note Template: What Is a Promissory Note?

When a simple handshake and an oral promise to pay is not sufficient to allay your fears and concerns about being “stiffed,” a promissory note can help put your mind at ease.

In the simplest terms, a promissory note is a document used regularly by banks and individuals when lending money. This legally binding contract not only guarantees that you will eventually get your money back, it outlines the exact amount the borrower will need to pay in installment payments, along with the date each of those payments are due. Consequently, should the borrower in the transaction fail to make any of the required payments by the agreed upon due date, the lender can take legal steps to recover the loan amount. Some promissory notes will even include interest charges and late fees—an aspect that ultimately serves as a type of financial incentive for the lender.

Free Promissory Note Template: The Importance of Having a Promissory Note in Place

A well-though-out and meticulously constructed promissory note is important on a number of different levels. Naturally, the simple fact that it’s a contract means it will protect the lender from financial losses, but when a promissory note is used when lending money to friends or relatives it can actually serve a much greater purpose.

The truth is that if you take the time to draft this informal contract, whether you borrow a free promissory note template from the Internet or construct your own promissory note template word, it can go a long way towards preventing misunderstandings between you and the borrower—misunderstandings that can often strain or jeopardize relationships. By using a sample promissory note template as your guide, you’ll undoubtedly find that it’s easy to create these simple documents, and by doing so you are in effect protecting your friendships and relationships. This contract should not be looked at as a sign of mistrust towards the borrower in the transaction, but rather as an instrument that will help put both of your minds at ease and help you feel more comfortable about the arrangement.

A Simple Promissory Note Template: What to Include

There are essentially two basic strategies for obtaining a free promissory note template to help you draft this contract. You could download a sample promissory note template from the Internet and adapt it to suit your purposes, or you can use your computer’s processing program to create an unique promissory note template Word—using Microsoft’s award-winning document application.

If you download a sample promissory note template from the Internet you will have many options from which to choose, most of which will already contain the legal language and topics you’ll need to create your own document. However, if you opt instead to draft a simple promissory note template from scratch, the following categories/topics should always be included:

• Lender Information. As the lender it’s important that you include your full legal name, address and contact information. This will become extremely important in the event the contract needs to be enforced legally sometime in the future.

• Borrower Information. If the loan is between two private parties, the sample promissory note template should include the borrower’s full name and address. Banks may require additional information from the borrower, including a social security number.

• Principal Amount. The “principal amount” section of a simple promissory note template is where you will enter the original amount of the loan before any interest charges (if any) have been applied.

• Repayment Information. Any promissory note template you choose to use should include detailed repayment information. This includes the total amount of the monthly payments, the day of the month when the payment will become due and the total number of payments it will take to completely pay off the loan.

As we mentioned, the promissory note template can also include a percentage of interest at the lender’s discretion. The final components of this contract are the signature lines where the borrower, lender, and in many cases, a witness will sign and date the document.

References

Useful Promissory Note Articles

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