A Promissory Note is also known as a:
- Secured Note
- Loan Agreement
- Loan Note
- Demand Note
Promissory Note Definition
A Promissory Note is a written promise from a borrower to repay a sum of money to a lender according to the terms set out in the agreement.
LawDepot's Promissory Note is available for England, Wales, Northern Ireland, and Scotland.
When Should You Use a Promissory Note?
A Promissory Note should be used for:
- Personal loans, such as lending money to friends or family
- Commercial or bank loans
- Investments, such as capital for a business venture
What Information Do You Need to Create a Promissory Note?
You will require the following information to complete your Promissory Note:
- Lender and borrower contact information
- Length of loan or whether it's payable on demand
- Principal loan amount and interest rate (if being charged)
- Optional collateral
- What happens upon default
Terms in a Promissory Note:
Loan Amount: the amount of money that is being borrowed.
Interest: a percentage of the loan that is charged in addition to the principal amount during the term or once a payment has been missed.
Repayment Schedule: the amount and interval of payments the borrower must make to the lender.
Collateral: security that is retained by the lender if the borrower defaults on the loan, such as a motor vehicle.
What Happens if the Borrower Defaults on the Loan?
If the borrower is unable to make payments and defaults on the loan, the lender may begin the process of seizing the collateral secured in the Promissory Note. Alternatively, the lender may pursue legal action and go through the courts to seek restitution.
How to Sign a Promissory Note
Depending on your jurisdiction, you may not need witnesses to sign the Promissory Note. However, having a third party present is better evidence that the Promissory Note was signed by the Borrower if the Lender needs to enforce the borrower's promise to pay.
At the very least, the borrower must sign the Promissory Note, but it may be beneficial to have both parties sign the document.
Forms Related to a Promissory Note: