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Free Promissory Note Template

Draft a Promissory Note to formalize and secure a loan. Create your own debt note easily today with our step-by-step instructions and form-builder tools.

Last Update January 19th, 2023

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What is a Promissory Note

A Promissory Note is a note payable form whereby a borrower promises to repay the lender. 

Promissory Notes have much in common with loan agreements, but the former only binds the borrower and is more informal. They function similarly to IOU notes, detailing information about what one person owes another.

However, Promissory Notes are legally more robust and enforceable, and provide much better protection for lenders.

Types of Promissory Notes

Different types of Promissory Notes exist. Depending on your situation, one kind may be more suitable than the other. 

There are 2 basic types of Promissory Notes: 

  • Secured Promissory Note: This type of Promissory Note is used when the lender wants to secure collateral, for example, a vehicle or television. If the borrower does not pay back the money in time, the lender has the right to claim the property. 

  • Unsecured Promissory Note: If you do not want to secure the loan with any collateral, you should use an unsecured Promissory Note. In this case, if the borrower does not pay back the money, the lender must file in a small claims court.

When to Use a Promissory Note

Promissory Notes are mostly employed for small loans between close family and friends

The following are additional circumstances when Promissory Notes can be appropriate:

  • Real estate loans. If the borrower fails to honor the agreement, the lender can legally enforce the appearance of the default payment in public records, consequently affecting the borrower’s credit. 

  • Debt loans. Typically used between friends or family members, they can help avoid unforeseen conflicts.

  • Business loans. Employed to borrow money from corporate lenders such as banks and financial institutions. Lenders have the right to attach liens on borrower assets until payment is made.

  • Student loans. Issued for education purposes, they are called master Promissory Notes.

  • Vehicle loans. Lists the payments the borrower needs to make to get full ownership of a car. It includes all the information related to the vehicle, including model and year.

  • Other loan types. They include corporate investment. If the borrower cannot return the agreed amounts, the lender becomes the owner of the company. 

Using a legal template allows you to document essential details. This includes the parties involved, when the money must be repaid, and any interest that should be paid on the capital that has been borrowed.

Promissory Note Fraud

As with many financial tools, Promissory Notes can be the subject of fraudulent activities. Specifically, scams involving business and investment Promissory Notes have significantly increased during the last few years.

With the promise of high returns, scammers have been able to defraud millions of dollars with illegitimate Promissory Notes. Examine the following recommendations to avoid falling victim to fraud:

  • Beware of exaggerated promises. If the promised returns are above market and sound too good to be true, they probably are.

  • Be cautious with guarantees. If the seller claims the operation is risk-free or has guaranteed returns, it is a clear indication you could be dealing with a fraudulent Promissory Note.

  • Confirm licenses and registration. Legitimate Promissory Notes must be registered with your state securities regulator. Make sure the seller is licensed and listed there too.

  • Consider if you were contacted first. Business and investment Promissory Notes are not typically offered to the masses. As complex legal instruments, it is experienced buyers who are customarily involved.

How to Write a Promissory Note

Promissory Notes may be more informal than full-blown loan contracts and financing agreements, but they still  must be carefully drafted. As an enforceable legal document, attention should be paid to how it is worded.

Use clear and plain English to draft the document, and cover essential information such as the parties' names and when payment will be due.

A successful Promissory Note contains the following details:

  • Lender and borrower names

  • The loan amount

  • A payment plan (one or several installments)

  • Whether interest will be paid on the principal

  • If collateral will secure the loan

  • The consequences in case of payment default

To correctly add this information to your Promissory Note, follow these steps:

  1. Mention the parties: Provide the full names and complete addresses of the borrower and the lender.

  2. Include the loan amountAdd the principal sum (amount being loaned) and the interest rate, if applicable.

  3. Explain payment terms: State the day when the loan amount must be paid back, and if it will be paid in one lump sum or installments.

  4. Choose a secured or unsecured loan: Select if there will be any collateral and late fees involved.

  5. Decide to include a co-signer or not: Decide whether there will be any co-signers.

  6. Mention the Governing Law: Add which state’s laws will govern the Promissory Note.

  7. Sign the Note: Sign the Promissory Note along with the other party and co-signers or witnesses.

Our promissory note template and step-by-step survey will help you create a legally binding and professional document that looks the part and works effectively.

It will help you identify the key information that must be found within your form for it to be valid and enforceable.

Our Promissory Note template and step-by-step survey will help you create a legally binding and effective professional document.

It will help you identify the key information that must be found within your form to be valid and enforceable.

How to Sign a Promissory Note

Once you have customized your Promissory Note, both parties must sign it. Only then will it be considered legally valid.

Complete the following actions before signing your document: 

  1. Evaluate if you require witnesses: In most cases, it is not a requirement. However, certain jurisdictions demand witnesses or a notary public to be present. 

  2. Fill in the date: Ensure the date is filled in at the moment of signing. 

  3. Sign the document: Both parties must sign the Note and include their printed names. 

  4. Provide copies: All parties should keep copies of the Promissory Note. 

Confirm that your Promissory Note complies with state laws and requirements before you sign the document.

Calculate Loan Interest Rate

Similar to loan agreements, loans secured through a Promissory Note can demand interest on the principal amount. 

Interest protects against borrower payment default, especially if the loan is not secured against any collateral and spreads over a long period.

When using debt instruments that levy interest, it’s important to remember that state usury laws apply. Take this into account when drafting your Promissory Note.

Usury Laws by State

If you have decided to charge interest on the loan amount, ensure you adhere to state laws and regulations.

Refer to our table below to confirm the maximum interest rate in your state:

State Law Maximum Interest Rate
Alabama § 8-8-1 8% for contracts in writing, 6% for verbal agreements
Alaska § 45.45.010 5% above the 12th Federal Reserve District Interest rate on day loan was created, or 10%, whichever is larger (loans less than $25,000). No maximum interest rate exists for amounts over $25,000
Arizona § 44-1201 No limit exists for loans in writing 10% per annum for any loans not in writing
Arkansas § 4-57-104 Cannot exceed the 17% maximum established in the Arkansas Constitution (Amendment 89)
California § Article XV 10% for personal, family, and household loans. The highest of 10% or 5% over the amount charged by the Federal Reserve Bank of San Francisco
Colorado § 5-12-103 & § 5-2-201 45% maximum interest rate for supervised loans 12% maximum interest rate for unsupervised loans
Connecticut § 37-4 The limit is 12%
Delaware § tit. 6,2301 5% limit over the Federal Reserve Discount rate at the time loan was created
Florida § 687.03 18% on loans below $500,000 25% on loans over $500,000
Georgia § 7-4-2 5% per month on amounts over $3,000 7% without a written contract 16% on loans under $3,000
Hawaii § 478-2, § 478-3, & § 478-4 10% limit without a written contract 12% is the general maximum interest rate 10% is the maximum on judgments
Idaho § 28-22-104 The general maximum rate is 12% The maximum rate on court judgments is 5%
Illinois § 815 ILCS 205/4 9% general usury limit
Indiana § 24-4.6-1-102 & § 24-4.5-3-201 8% is the maximum without an agreement 25% for consumer loans that are not supervised
Iowa § 535.2(3)(a) The general maximum interest rate is 5% If the interest
Kansas § 16-201 & §16-207 10% legal interest rate 15% general maximum interest
Kentucky § 360.010 8% legal rate of interest The maximum interest rate is 4% larger than the Federal Reserve rate (or 19% whichever is less) There is no limit when stated in a written contract with a loan larger than $15,000
Louisiana § 9:3500 12% general maximum interest rate
Maine § tit. 9-B, § 432 6% legal interest rate (no maximum in any statute)
Maryland § 12-102 103 6% legal interest rate 8% maximum interest rate with a written contract
Massachusetts § 3 & Ch. 271, § 49 6% legal interest rate without a written contract Normally does not go over 20% (if part of the contract)
Michigan § 438.31 5% legal rate 7% with a written contract
Minnesota § 334.01 6% legal rate of interest 8% maximum interest rate for written contracts No limit if the amount is over $100,000
Mississippi § 75-17-1 8% legal rate of interest The rate may be increased up to 5% or 10% above the Federal Reserve discount with a contract
Montana § 31-1-107 The highest of 15% or 6% over the Federal Reserve System rate
Nebraska § 45-101.03 16% maximum usury rate
Nevada § 99.050 The least of 36% or the maximum rate allowed under the Military Lending Act
New Hampshire § 336:1, § 358-A:2 No legal limit exists for interest rates
New Jersey § 31:1-1 6% without a written contract 16% with a written contract
New Mexico § 56-8-3 15% maximum without a written contract
New York § 5-501 & § 14-A 6% legal interest rate 16% general usury limit
North Carolina § 24-1 8% legal rate Consumers and creditors are allowed a higher contractual rate
North Dakota § 47-14-09 5.5% maximum interest rate above the current maturity rate of Treasury bills for six months prior to the issuance of the loan for written contracts less than $35,000, or 7%, whichever amount is greater
Ohio § 1343.01 8% interest rate in any written contract
Oklahoma §266 6% legal rate of interest without any contract
Oregon § 82.010 9% legal interest rate 15% or 5% greater than the 90-day discount rate of commercial paper for business and agricultural loans
Pennsylvania § 201 6% interest rate
Rhode Island § 6-26-2 21% or domestic prime rate plus 9% maximum interest rate
South Carolina § 37-3-201 10% maximum interest rate unless stated otherwise in a contract
South Dakota § 54-3-4 & § 54-3-16(3) No limit exists for written agreements 12% maximum interest rate without a written agreement
Tennessee § 47-14-103 10% maximum interest rate unless stated otherwise in a contract
Texas § 302.001(b) 10% interest rate Can be higher if the loan is provided by contract law
Utah § 15-1-1 10% maximum interest rate unless stated otherwise in a contract
Vermont § 41a 12% rate of interest unless it falls under a particular circumstance provided in § 41a
Virginia § 6.2-301 & § 6.2-303 6% legal rate 12% with a contract
Washington § 19.52.020 12% maximum interest rate, or 4% over the average bill rate for 26- week treasury bills in the month the loan took effect
Washington D.C. § Title 29, Chapter 33 24% maximum interest rate for written contracts 6% maximum interest rate for verbal contracts
West Virginia § 47-6-5 6% legal interest rate 8% maximum interest rate for written agreements
Wisconsin § 138.04 5% legal interest rate Interest rates in written agreements can be agreed upon
Wyoming § 40-14-106 7% interest rate Interest rates in written agreements can be agreed upon

How to Sign a Promissory Note

Once you have written a custom Promissory Note, you’ll need to sign it along with the other party so that it can be considered legally valid.  

To ensure that you sign your legal document correctly, you must complete the following steps

  1. Review if you require witnesses: In general, you won’t need any witness testimonies. However, certain jurisdictions have witness requirements or require that a notary public witnesses the signing. 

  2. Fill in the date: If you haven’t done so already, ensure the date is filled in at the moment of signing. 

  3. Sign the document: Both you and the other party must then sign the Note, along with your printed names. 

  4. Provide copies: Both you and the other party should receive and keep copies of the Promissory Note. 

Before signing the Promissory Note, or any legal document, ensure you review and follow all the requirements of the state’s laws that you are signing your Note in.

Release of Promissory Note

Once the debtor has fully repaid the principal amount and interest, complete a Promissory Note release form and provide a copy to the borrower.

This legal form serves as a formal receipt that the debtor has honored the agreement described in the note, releasing them from any further obligations and liabilities.

What to Do if the Borrower Defaults

It is essential to be prepared in the event that the borrower defaults on the loan and does not repay the planned installments. 

The situation must be handled carefully to find an adequate solution

Consider these options in case of borrower default: 

  • Have a conversation with the borrower to understand the problem. 

  • Provide the borrower with a copy to review the agreed-upon terms. 

  • Send them a Demand for Money Owed letter by certified mail if the borrower doesn’t comply. 

  • Collect all the evidence, including any proof of conversations with the borrower. 

  • Think about using a debt settlement agreement to recover losses. 

If none of these measures work, you should consider suing the borrower in court to recover the money. 

Sample Promissory Note

When writing a Promissory Note for the first time, it can help to see a real example first. This will assist you in getting a feel for the structure and terminology.

Check our Promissory Note example document below to get a better idea of how your final form should turn out.

Other Financial Templates

A Promissory Note can prove practical in many situations. Should your circumstances change, you may find these other documents related to loans helpful:

Promissory Note FAQs

It is crucial to be fully clear on what your Promissory Note should contain before creating your document. If you are still unsure of the details, read through our FAQs below to learn more about their purpose and essential elements.

What is Included in a Promissory Note?

A Promissory Note briefly summarizes the key points of a promise to pay back a sum of money.

This includes information such as how much money is being lent, who the lender and borrower are, when the loan must be repaid, how much is being charged, and whether any collateral will secure the loan.

Do I Need Witnesses to Sign the Promissory Note?

There is no obligation for the signing of your Promissory Note to be witnessed, but it can be a lender requirement in some cases.

Witnessing adds more legitimacy to the signing of your debt note. It ensures all parties are fully aware of the contract terms and that they agree to them.  

Does a Promissory Note Need to be Notarized?

No, Promissory Notes do not require notarized signatures. 

A lender or borrower can still choose to get the document notarized to add an extra layer of security and certainty to the signed document and maximize enforceability. 

What Makes a Promissory Note Invalid?

Like most signed agreements and contracts, Promissory Notes must follow state and federal financial and legal regulations. Otherwise, they may be declared invalid. 

Breaching usury laws, losing all copies of the note, including false or incorrect information, and being unable to prove legal ownership of the debt could nullify your agreement.

Where Can I Get a Promissory Note Template?

It is possible to create your very own Promissory Note online using our expert template and step-by-step guidance.

Easily fill out the information with our predefined layout to create a binding agreement between you and a borrower.

Alternatively, you can pay an attorney to prepare the document before issuing your loan.

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