Promissory Note Template

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A promissory note, or “promise to pay”, is a loan contract between a lender that agrees to lend money to a borrower to be repaid with interest.

The note holds the borrower accountable for paying back the money under the agreed-upon terms. If the borrower fails to repay the loan, they will be in default and subject to seizure of their assets.

Usury Rate Laws – The maximum interest rate (%) allowed in a State.

By State

By Type (2)

Secured Promissory Note – For the borrowing of money with an asset of value “securing” the amount loaned such as a vehicle or a home. If the borrower does not pay back the amount within the time frame suggested the lender will have the right to obtain the property of the borrower.

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Unsecured Promissory Note – Does not allow the lender to secure an asset for money loaned. This means that if the payment is not made by the borrower that the lender would have to either file in small claims court or through other legal processes.

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Table of Contents

What is a Promissory Note?

A promissory note is a promise to pay back money owed within a specific timeframe. The borrower receives the funds after the note is signed and agrees to make payments under the terms and conditions of the note. The lender will collect interest which acts as a fee for lending the money.


How to Create a Promissory Note (5 steps)

Step 1 – Agree to Terms

Before both parties sit down to write an agreement, the following should be verbally agreed upon:

  • Amount ($) – The amount of money being borrowed.
  • Interest Rate – In other words, the fee for borrowing the money (See How to Calculate). Make sure to check the Interest Rate Laws in your State (or “Usury Rate”). All States have a maximum amount of interest a lender is able to charge.
  • Late Fee(s) – In the case there will be penalties for late payment.
  • Security – Items such as vehicles or a 2nd mortgage on a home is provided if the borrowed money is not paid back by the borrower. This is to provide assurance to the lender that their money will be paid-back either in cash or assets.
  • Terms of Repayment – Will the payments be made incrementally or as a lump sum?
  • Default Clause – Provide terms in the chance the money is never paid back by the borrower.
  • Co-Signer – If the borrower is not financially capable of borrowing the money a 2nd person should be named to pay back the loan if the borrower cannot do so themselves.

Step 2 – Run a Credit Report

It is always a good idea to run a credit report on any potential borrower as they may have outstanding debt unbeknownst to you. Especially if the debt is IRS or child support related it will take precedence over this promissory note. Therefore, it is imperative that a credit report is run before making any type of agreement.

Reporting Agencies – It is a good idea to use Experian which is free to the lender and charges $14.95 to the borrower. Experian is known as the most sensitive credit agency usually providing the lowest score of the 3 Credit Bureaus (Experian, Equifax, and TransUnion).

Authorization Form – In order to run someone else’s credit, you must obtain written legal permission.

Step 3 – Security and Co-Signer(s)

If there are red flags that appear on the credit report the lender may want to have the borrower add Security or a Co-Signer to the note. Common types of security include motor vehicles, real estate (provided as a 1st or 2nd mortgage), or any type of valuable asset.

This would mean that in the event the borrower did not pay back the funds that the lender would be able to obtain full ownership of the security placed in the note. In the case of a co-signer, he or she would be liable for the full extent of the money owed along with all penalties or late fees.

Step 4 – Writing the Note

After the main terms of the note have been agreed upon the lender and borrower should come together to authorize the formal agreement. For instructions on how to fill in the document, line-by-line refer to the How to Write section.

Signing – The money should exchange hands after it has been signed. It is not required that a witness sign the form but is recommended. For excessive amounts (more than $10,000) a notary public is recommended.

Step 5 – Paying Back the Money

The borrower should pay back the borrowed money on time and in accordance with the note. If not, fees may be applied to the overall balance. Once all the money has been fully paid back to the lender a Loan Release Form is created and issued to the borrower relieving them from any liability from the note.

  • If Payment is Late – If the payment is late the lender should issue a Demand Letter. This is a form that informs the borrower of the terms stated in the promissory note such as the penalty for late payment as well as how much time they have before they become in default.
  • If Borrowed Money is Never Paid –  If the borrower defaults on the note then the lender can collect by minimizing their costs by seeking the funds through Small Claims Court (Small Claims is usually limited to a value of $10,000 or less, be sure to check the laws in your jurisdiction). If there was security placed in the note then the property or asset shall be turned over to the borrower in accordance with the note. Otherwise, legal action will most likely be necessary for money owed in value of more than $10,000.

How to Calculate (3 ways)

1. Total Interest Owed

Money Borrowed X Annual Interest Rate = Total Interest Owed

If the payment is monthly or quarterly, then divide the total above by the fraction of the year it will take to repay the loan. Example: Payment due in 3 months would require you to divide the total by 4 since it’s only 1/4 of the year.

  • Example – Let’s say I wanted to borrow $1,000 for 3 months at an interest rate of 10%. First, I would want to calculate the interest rate over a year span which would be $100 ($1,000 times 10%). Then, I would divide the $100 amount by 4 (as there are 4, 3-month periods in a year) and I would arrive at $25 as the total interest owed I would need to pay over the course of 3 months for borrowing $1,000. The final payment amount would be $1,025.

2. Total Repayment Amount

Money Borrowed + Total Interest Owed = Final Payment Amount

  • Example – Let’s say I wanted to borrow $1,000 for 3 months at an interest rate of 10%. First I would want to calculate the interest rate over a year span which would be $100 ($1,000 times 10%). Then, I would divide the $100 amount by 4 (as there are 4, 3-month periods in a year) and I would arrive at $25 as the total interest owed I would need to pay over the course of 3 months for borrowing $1,000. The final payment amount would be $1,025.

3. Monthly Payment Amount

(Money Borrowed + Total Interest Owed) / Number (#) of Months = Monthly Payment Amount

  • Example – Let’s say I wanted to borrow $1,000 for 3 months at an interest rate of 10%. First I would want to calculate the interest rate over a year span which would be $100 ($1,000 times 10%). Then I would divide the $100 amount by 4 (as there are 4, 3-month periods in a year) and I would arrive at $25 as the total interest owed. Then we would add the Money Borrowed of $1,000 to the $25 of interest due which equals $1,025. Since there are 3 months we would divide $1,025 by 3 and the monthly payment amount would equal $341.67.

Usury Laws (Interest Rates %)

Also known as the maximum rate of interest a lender can charge. It’s important that Lenders do not charge a rate of interest more than what their state allows. The following are links to each state’s Usury Rate Laws.

State Usury Rate Laws
 Alabama 8% for written contracts, 6% for verbal agreements. Ala. Code § 8-8-1
 Alaska For loans less than $25,000, 5% above the 12th Federal Reserve District interest rate on the day the loan was made, or 10%, whichever is greater. If the amount is more than $25,000, there is no maximum rate. Alaska Stat. § 45.45.010
 Arizona No limit for loan agreements in writing. If not in writing, the rate shall be 10% per annum. Ariz. Rev. Stat. Ann. § 44-1201
 Arkansas Rate of interest may not exceed the maximum of 17% as established in the Arkansas Constitution, Amendment 89. Ark. Code Ann. § 4-57-104
 California Rate may not exceed 10% per year on loans for personal, family, or household purposes. For other loans for other purposes, the maximum is the higher of 10% or 5% over the amount charged by Fed. Res. Bank of San Francisco at the time loan was made. Cal. Const. Article XV, § 1
 Colorado For supervised loans general usury limit is 45%, and the maximum for unsupervised loans is 12%. Colo. Rev. Stat § 5-12-103 and § 5-2-201
 Connecticut The interest rate may not exceed 12%. Conn. Gen. Stat. § 37-4
 Delaware Not in excess of 5% over the Federal Reserve discount rate at the time the loan was made. Del. Code. Ann. tit. 6, § 2301
 Florida General usury limit is 18%, 25% on loans over $500,000. Fla. Stat. § 687.03 and § 687.01
 Georgia The default is 7% if no written contract is established. For written contracts, the maximum 16% on loans below $3,000, 5% per month on loans between $3,000 and $250,000, and no limit on loans above $250,000. Ga. Code Ann. § 7-4-2 and § 7-4-18
 Hawaii The default is 10% if no written contract is established, 12% is the general usury limit, and 10%  is the limit on judgments. Haw. Rev. Stat § 478-2, § 478-3, and § 478-4
 Idaho Unless stipulated in a written agreement, the legal rate is 12%. The rate of interest on money due on court judgments is 5%. Idaho Code Ann. § 28-22-104
 Illinois The general usury limit is 9%. 815 Ill. Comp. Stat 205/4
 Indiana 8% in the absence of agreement, 25% for consumer loans other than supervised loans. Ind. Code § 24-4.6-1-102 and § 24-4.5-3-201
 Iowa The maximum interest rate is 5% unless otherwise agreed upon in writing, in which case, maximum is set by Iowa Superintendent of Banking (IA Usury Rates). Iowa Code § 535.2(3)(a)
 Kansas The legal rate of interest is 10%; the general usury limit is 15%. Kan. Stat. Ann. § 16-201 and  §16-207
 Kentucky The legal rate of interest is 8%, the general usury limit is 4% greater than the Federal Reserve rate or 19%, whichever is less. Any rate may be charged when identified in a contract in writing on a loan greater than $15,000. Ky. Rev. Stat. Ann. § 360.010
 Louisiana The general usury rate is 12%. La. Rev. Stat. Ann. § 9:3500
 Maine The legal interest rate is 6% (no usury limit mentioned in statutes). Maine Rev. Stat., titl. 9-B, § 432
 Maryland The legal interest rate is 6%, a maximum of 8% if a written contract is established. Md. Code Ann., Com. Law § 12-102 – 103
 Massachusetts The legal interest rate is 6% (unless a written contract exists); even if part of a contract, an interest rate over 20% is criminally usurious. Mass. Gen. Law Ch. 107, § 3 and Ch. 271, § 49
 Michigan 7% maximum if a written contract is established. Otherwise, the legal rate is 5%. Mich. Comp. Laws § 438.31
 Minnesota The legal rate of interest is 6%. For written contracts, the usury limit is 8%, unless for an amount over $100,000, in which case there is no limit. Minn. Stat. § 334.01
 Mississippi The legal rate of interest is 8%. Parties may contract for a rate of up to 10% or 5% above the Federal Reserve discount rate, whichever is greater. Miss. Code Ann. § 75-17-1
 Missouri The maximum interest rate is 10%, unless the market rate is greater at the time. Mo. Rev. Stat. § 408.030
 Montana 15% or 6% above the rate published by the Federal Reserve System, whichever is greater. Mont. Code Ann. § 31-1-107
 Nebraska The maximum interest rate is 16%. Neb. Rev. Stat. § 45-101.03
 Nevada Parties may contract for a rate up to the lesser of 36% or the maximum rate permitted under the federal Military Lending Act. Nev. Rev. Stat. § 99.050
 New Hampshire There is no legal limit on interest rates. It is unclear whether an exorbitant rate could be considered “unfair” under the New Hampshire Consumer Protection Act and hence unlawful. N.H. Rev. Stat. Ann. § 336:1, § 358-A:2
 New Jersey 6% without a written contract, 16% maximum if a written contract is established. N.J. Stat. Ann. § 31:1-1
 New Mexico 15% maximum in the absence of a written contract. N.M. Stat. Ann. § 56-8-3
 New York The legal rate of interest is 6%, the general usury limit is 11.25% N.Y. Gen. Oblig. § 5-501 and N.Y. Banking § 14-A
 North Carolina For loans less for less than $25,000, the maximum is the amount announced on the 15th of each month by the North Carolina Commissioner of Banks. For loans greater than $25,000, the parties may agree in writing to any amount. N.C. Gen. Stat. § 24-1.1
 North Dakota For written contracts for loans less than $35,000, the maximum rate is 5.5% above the current maturity rate of Treasury Bills for the six months preceding the issuing of the loan, or 7%, whichever is greater. N.D. Cent. Code § 47-14-09
 Ohio The maximum interest for written contracts for loans of amounts less than $100,000 is 8%. Ohio Rev. Code Ann. § 1343.01
 Oklahoma The parties may agree in a written contract to any rate so long as it does not violate other applicable laws. Okla. Stat. tit. 15, §266
 Oregon The legal interest rate is 9%, but the parties may agree to different rates in a written agreement. Business and agricultural loans have a maximum of 12 percent or five percent greater than the 90-day discount rate of commercial paper. Or. Rev. Stat. § 82.010
 Pennsylvania For loans less than $50,000, the maximum rate is 6%. 41 Pa. Cons. Stat. Ann. § 201
 Rhode Island The maximum interest rate is the greater of 21%, or the domestic prime rate as published in the Wall Street Journal plus 9%. R.I. Gen. Law § 6-26-2
 South Carolina Unsupervised lenders may not charge a rate above 12%. No lender may charge a rate above 18%. S.C. Code Ann. § 37-3-201
 South Dakota No limit if a written agreement is established, 12% if no agreement exists. S.D. Codified Laws § 54-3-4 and § 54-3-16(3)
 Tennessee The maximum rate is 10% unless otherwise expressed in a written contract. Tenn. Code Ann. § 47-14-103
 Texas The parties may agree in writing to a maximum rate up to the weekly ceiling as published in the Texas Credit Letter. If no agreement exists, then the maximum is 10%. Tex. Fin. Code Ann. § 302.001(b), §303.002
 Utah The maximum rate of interest is 10% unless the parties agree to a different rate in a written contract. Utah Code Ann. § 15-1-1
 Vermont The rate of interest is 12% except in certain circumstances as provided in subsection (b) of § 41a. Vt. Stat. Ann. tit. 9, § 41a
 Virginia The legal rate of interest is 6%. With a contract in place, the maximum interest rate is 12%. Va. Code Ann. § 6.2-301 and § 6.2-303
 Washington The maximum rate of interest is 12% or 4% points above the average bill rate for 26-week treasury bills in the month before the loan was made. Wash. Rev. Code § 19.52.020
 Washington D.C. The maximum rate of interest is 24% for written contracts and 6% for verbal contracts. D.C. Code, Title 29, Chapter 33
West Virginia The legal interest rate is 6% but parties may agree to a maximum of 8% in a written agreement. W. Va. Code § 47-6-5
 Wisconsin The legal rate of interest is 5%. Parties may agree to a different rate in a written agreement, subject to limitations that depend on the identity of the lender. Wis. Stat. § 138.04
 Wyoming The rate of interest is 7% if no agreement is established in a written contract. Otherwise, parties may agree to a higher rate. Wyo. Stat. Ann. § 40-14-106

Key Terms & Clauses

Allocation of Payments – Describes how payments shall be made in regards to late fees, interest, and the principle. In our free promissory note, payments shall first pay off any late fees and interest before the principle is credited.

Acceleration – In the event a borrower defaults on the note or on a provision within the note and does not cure the default within the allotted time frame, the lender has the option to demand immediate payment of all outstanding dues from the borrower.

Attorney’s Fees and Costs – The borrower must pay all monies incurred if defaulting on the loan results in the involvement of attorneys and court proceedings. However, if the borrower ends up prevailing in court, no matter the issue, the lender must then pay for all court-related costs.

Conflicting Terms – That no other agreement shall have superior legality or control over the promissory note.

Co-Signer – Or “guarantor”, is a person that guarantees a loan if the borrower defaults. Typically if the lender suspects a borrower to be risky, the lender may require the borrower to obtain another credible person to co-sign on the note.

Execution – States that the borrower is the Principal within the note and severally liable for all dues. If there is a co-signer, both the borrower and the co-signer are equally responsible for paying back the loan.

Integration – States that no other document can affect the terms or validity of your promissory note. Only can your promissory note be amended (edited) if both the lender and borrower sign a written agreement.

Non-Waiver – If for any reason the lender fails or delays to exercise their rights under the terms of the note, it does not signify or deem that they are waiving their rights. For example The lender delays in responding to the borrower about an upcoming payment due. The non-response by the lender does not give the borrower the right to not make payment on the due date.

Notice – Describes how notices should be delivered to the borrower. It is standard practice for notices to be written and to be delivered either in person or by certified mail with copies and receipts.

Pre-Payment – A clause detailing the rules of paying off the loan early, whether it’s the entire loan or individual payments. Some loans may require that the borrower pay a fee in order to “prepay” the loan.

Severability – A clause within a promissory note which states that if any provision within the note becomes void or unenforceable, it does not deem the entire note or any other provision within the note invalid.

Waiver of Presentments – This is a short clause that implies that the lender does not have to demand payment when payments or the loan is due, the borrower holds the responsibility to make certain that the payments are paid when due. If the borrower does not pay when due, the lender must issue a notice of non-payment. Further, if the borrower refuses to pay the note, the lender shall have the notice of non-payment presented and notarized which may follow with legal proceedings.

How to Write

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Introduction To Promissory Note

(1) Effective Date. The date when this promise of repayment first becomes effective requires documentation. Produce this information utilizing the first few spaces of the initial statement. Consider the date recorded here to be the first date when the conditions and terms of the loan are set in place.

(2) Borrower’s Name. The identity of the Party who shall receive the Lender’s money under the conditions (for repayment) this note imposes must be presented. If this Borrower is a Business Entity then its entire legal name will be required including its official status suffix.

(3) Borrower’s Mailing Address. The address where the Borrower legally receives mail correspondence and official notices is required as well as his or her name. Use the calling for this information to present it.

(4) Lender’s Name. The Person or Business Entity promising to lend money to the Borrower must be attached to this role. The Lender’s intent will be to be repaid the full amount lent in addition to any interest or late fees owed within a predetermined time frame that begins with this note’s effective date.

(5) Lender’s Mailing Address. Submit a production of the Lender’s complete mailing address.

(6) Principal Sum. The amount of money the Lender shall dispense to the Borrower must be established before discussing the conditions of its return to the Lender. Present the loan amount in its written form where requested, then within the parentheses reproduce this amount numerically as confirmation.

(7) Interest On Unpaid Balance. In most cases, the Lender will seek not only repayment but an additional interest amount. This is considered standard practice when any given amount of money is lent and is usually calculated according to a predetermined percentage of the total sum being lent to the Borrower while remaining compliant with the limits placed by the State whose jurisdiction applies. Report the percentage that shall be applied to the loan amount as its interest rate.

Article 1

(8) Due Date. The first section shall seek several facts defining repayment of the Borrower’s debt to the Lender. The calendar date when the Lender expects to have received the full amount that was borrowed plus the interest amount that would be owed must be documented at the start of this section.

Section A. Installments

(9) Lump Sum. The amount that makes up the Borrowers payment amount to the Lender must be addressed. If the Borrower will be expected to repay the full amount he or she owes the Lender in one payment, then select the “Lump Sum” statement from Section A and document the amount that will satisfy the debt owed along with the calendar date that this payment will be due.

(10) Installments. If the Lender expects to receive several payments periodically from the Borrower until the owed amount is repaid then select the “Installments” checkbox. This statement requires additional information beginning with a production of the dollar amount the Borrower must submit to the Lender as an installment payment.

(11) Payment Schedule. If the Borrower will guarantee that he or she will follow a payment schedule until the full amount owed is repaid to the Lender then, the schedule of these payments must be established. Indicate if the Borrower will submit the installment amount on a weekly basis, a monthly basis, or a quarterly (every three months) basis by selecting the appropriate checkbox from the options provided. Note that only one frequency of installment payments may be selected from this area.

(12) Late Fee. There may be times when the Borrower is unable to submit the installment amount in a timely fashion. If the Lender will impose a late fee (regardless of the reason for the lateness) then document the dollar amount that will be added to the late or unpaid installment as a penalty or late fee.

Article 2 Security

(13) Unsecure. If the Lender will be satisfied with the execution of this paperwork and the Borrower’s financial health and will not require security in the form of the Borrower’s property then mark the checkbox labeled “Unsecure.”

(14) Secure. If the Lender requires that the Borrower provide some form of security that the debt owed will be paid then select the second checkbox of Article 2. In addition to making this selection, list all the property that the Lender may seize should the Borrower violate this agreement or become delinquent in the repayment of the borrowed amount. This list should contain information that will clearly identify the security. For instance, if the Borrower is using his or her car as security, then the make, model, year, odometer reading, VIN (vehicle identification number), and Title number should be documented here. Do not list any property that the Borrower does not agree to release to the Lender as security for an unpaid amount of this loan.

Article 14 Co-Signer

(15) No Co-Signer. Article 14 will seek to document the Co-Signer status of this loan. If the Lender does not require the Borrower to obtain a Co-Signer to support the Borrower’s promise of repayment then the first checkbox of this section must be selected.

(16) Co-Signer. If the Borrower has obtained a Co-Signer to satisfy the Lender’s requirement for this loan, then select the second checkbox statement in Article 14. Additionally, the full name of the Co-Signer must be supplied to this statement. Only name a Co-Signer who will provide a signature acknowledgment that he or she will accept the responsibility of paying the Borrower’s debt to the Lender (should the Borrower fail to do so) in this area.  Do not choose this option if there are no Co-Signers willing to assume this responsibility.

Article 16 Governing Law

(17) Jurisdiction. This note will be considered a binding contract once it is signed. As such, the State that holds jurisdiction over its Participants and the conditions it imposes will need to be established before its execution. Use the space in Article 16 to indicate which State’s court system will govern this note.

Article 17 Signature Area

(18) Lender’s Signature. This paperwork should be reviewed by all the concerned Parties before it is executed by signature. If the Lender is satisfied with the conditions and the terms by which he or she shall agree to effect a loan to the Borrower, then he or she can assume the role of Lender (only) by signing this note then printing his or her name. In addition, to this action, the Lender’s signature date must be documented.

(19) Borrower’s Signature. The Borrower is encouraged to review this note and the obligations it places upon him or her before proceeding. If the Borrower intends to agree to the conditions and terms above, then he or she must sign this document, print his or her name, and dispense a record of the current date.

(20) Co-Signer Signature. If a Co-Signer has been required by the Lender and named above in Article 14, then he or she must formally agree to assume the responsibility of this loan (if the Borrower defaults) by signing this note. After this signature is provided the Co-Signer should present his or her printed name and furnish the date when he or she submitted these items of acknowledgment.

(21) Witness Signature. The Witnessing Party who has observed the Lender(s), Borrower(s), and, if applicable, the Co-Signer(s) complete their respective signature areas will now have to show proof that he or she was present by signing the signature line presented, dispensing his or her printed name, and confirming the signature date.

Related Forms (2)

I Owe You (IOU) – A receipt acknowledging a debt that is owed with no timetable for payment.

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Loan Release Form – When the note has been paid-in-full, the lender should set the borrower free of all liabilities by authorizing a release form.

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