Loans are a significant source of cash infusions. If you have ever accessed a loan, you have signed a promissory note at one point. Promissory notes protect the contractual relationship between the lender and the borrower and are essential debt instruments in businesses and personal finance. Below we analyze the promissory note, preparing one, and how usury laws apply to the note.
What Is a Promissory Note?
A promissory note or note payable is a legally binding written declaration stating a borrower agrees to pay the lender a specific sum of money on demand or at a specified future date. At the minimum, a promissory note details the principal amount, interest rates, and payment date.
What Is A Promissory Note Template?
A promissory note is a pre-designed fillable form containing the essentials of a promissory note. With a template, all you need to do is key in the party’s names, amount, date, and signature to make the form legitimate.
Promissory Note Templates & Examples
When to Use a Promissory Note?
A promissory note formalizes the loan agreement and details the terms of payment. Use promissory notes when lending out substantial amounts of money. Ideal utilities for the promissory notes include car, mortgages, business, student, and personal loans.
Tip: Contemporaneously prepare a loan agreement with a promissory note. The loan agreement further strengthens the legitimacy of the promissory note.
Loan Promissory Note Template
It is a promise to pay a loan made by the borrower. It is a financial tool, and it shows the amount of cash the borrower should pay, inclusive of interest at a future date. Like any other promissory note, the parties will fill in details as required; this is important for future reference.
Vehicle Promissory Note Template
Used in the buying and selling of vehicles, whereby vehicle repossession happens if the borrower does not fulfill the contract terms. Parties will fill in similar details as seen with other types of promissory notes. It could also be a type of secured promissory note.
Secured Promissory Note Template
Mortgage Promissory Note Sample
Release of Promissory Note Template
for Corporate Reimbursement
Unsecured Promissory Note Template
Promissory Note Template PDF
Printable Blank Promissory Note
Promissory Note on Demand
Promissory Note in PDF
Interest Promissory Note Template
Fillable Blank Note Template
Promissory Note Sample
Secured Promissory Note (Word)
It is a legally binding agreement, and it is between the lender and the borrower. Details included in this note include the amount borrowed, personal information of the borrower, and payment terms. It is made on the borrower’s ability to pay, secured via something of value like a house.
Simple Promissory Note Template
It is similar to a secured promissory note; however, it is a note secured through something of value. The similarity is through the details parties involved fill. These include names and signatures, date, state, amount of cash involved, and a witness signature.
Simple Promissory Note
Promissory Note for Deed of Trust
Promissory Note Corporation Template
Promissory Note (PDF)
Promissory Note Template (Word)
How To Calculate
Calculating the periodic payment amount (usually monthly) requires you to calculate the total amount owed plus interest. Below is how you go about it:
- Calculate the total interest owed. Principal x interest rate= total interest owed. If the interest compounds quarterly, or monthly, you will have to refigure the principal for the period.
- Computer the repayment amount. Principal + interest owed= total repayment amount.
- Finally, divide the loan repayment amount by the number of months and note it down. In your promissory note, you will write it as the borrower’s monthly payment.
Tip: Use free interest calculators online or software if you are not a fan of brain-churning calculations.
How to Write
A well-written promissory note properly documents the loan and ensures the borrower will pay you back. If you don’t know how to write one, follow these easy to do steps:
1) Input lender’s and borrower’s details
Write both the sender’s and lender’s legal names and addresses.
2) Effective and due date
State the date the note becomes effective and when the final payment from the borrower is due. Write the effective date before the borrower’s name and the due date after the payable amount.
3) Repayment amount
Write the principal sum plus the interest charged on loan. Detail the %interest and the frequency of compounding.
Tip: Use professionally designed templates to prepare your promissory note. Customize it to suit your needs and counter-check before downloading the template.
4) Payment plan
Under this section, concisely describe the mode of payment, periodic payment amount, and the maturity date for the loan. Indicate the payment that offsets the principal balance and the percentage that the borrower pays as interest.
5) Sign the note
The borrower will sign the not either with a notary public present, witness or none, depending on the state laws. Witnesses and the lender can also sign the note, although it doesn’t add an extra layer of legality.
Usury Laws
Usury is charging higher interest than the maximum allowable interest on loans. Each state has varying rates. Check out the Usury Rate Laws for your state, or liaise with your attorney when preparing your promissory note.
Warning: Unreasonable usury may render the promissory note unenforceable. Check the maximum interest your state allows before exceeding it.
Different Key Terms & Clauses
- Conflicting terms that state no there agreement can supersede the promissory note.
- Allocation of payment details the late fees, interest, and principal amount.
- Attorney’s fees and costs acknowledge the borrower will pay reasonable attorney fees for legal proceedings if they default on the loan.
- Integration clause that states no other legal document will interfere with the legitimacy of the promissory note.
- Prepayment clause detailing the provisions and any fees for paying the loan early.
- Severability exempts other aspects of the note from invalidation if one of the note’s provisions is void.
FAQs
Yes, any lender can write a promissory note, whether an entity or an individual. Check your state laws if they require the note to be notarized or witnessed.
A promissory note is legally binding, and contravening the agreement will lead to repossession of collateral the borrower put on the loan. However, for the note to be legit, the borrower must sign it.
A witness is generally a prudent move when signing a promissory note; however, it’s unnecessary. State laws vary, and your state may require a witness to the note. It is best to consult your attorney before preparing the note.
Promissory notes are valid without a notary public during the signing. However, some states require the note to be notarized; otherwise, it won’t hold any weight in court.
Any valuable property acts as the collateral for the loan. Conversely, you will need a deed of trust to secure the promissory note with real estate.
The statute of limitations varies from state to state, but the typical validity period is 3-15 years. However, if the lender specified maturity date, it is valid until the last payment is due on the set date.
There are two parties to a promissory note. However, some templates include a third party on a co-signed loan.
The borrower will lose the collateral that secured the loan, or the lender can pursue legal action to seek restitution.
A disinterested party can witness a promissory note. The witness will sign the note to make it legitimate.
The lender typically prepares the promissory note for the borrower to sign.
A promissory note is legally enforceable. However, the note must have the borrower’s signature, reasonable interest rates, and within the confines of the statute of limitations to carry weight in court.
The necessity is a borrower’s signature. Witness and lender signatures are not a must, but it is intelligent to include them.
No, it is not mandatory to record a promissory note. It is still enforceable without filing it.
Final Thoughts
Whether it’s a family or institutional loan, properly document the lines of credit via a promissory note. Include the relevant clauses and keep in mind usury laws. Now you are in the know about promissory notes.
