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Unsecured Promissory Note Template

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An Unsecured Promissory Note is a document that details the borrowing of money from one individual or entity to another without security if the debt is not paid in full. Unlike a secured promissory note, the lender is taking into account the borrower’s credibility without receiving anything in return if they shall default on their payments. Typically, payment is structured on a weekly or monthly basis with installments made by specific dates and without pre-payment penalties.

Secured Promissory Note – Requires the Borrower to place assets or property in the Note which is only given to the Lender in the event of non-payment.

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What is an Unsecured Promissory Note?

An unsecured promissory note is a simple agreement form that accompanies a loan. It is sometimes referred to as a bank note by individual lenders. The purpose of this document is to outline how the borrower (the person receiving money from a bank or another lender) promises to pay back the money.

Compared to the fine-print terms and conditions of the loan, a promissory note is much more simplified. Most look fairly similar to each other, and they can be as short as a page long. Generally, it lays out terms for the following:

  • A borrower’s promise to pay
  • Amount lent and the interest rate
  • How often payments are to be made and to whom
  • How much the payments are to be
  • Any additional fees to be paid
  • Any terms for late payments/fees, what happens when the loan defaults, etc.

Of course, both parties and any witnesses will sign the promissory note. Then it will be notarized by the proper local, county, or state officials. In essence, the promissory note is just a signed statement documenting the transaction of a loan and the borrower’s intent that they will pay back the loan.

How to Make an Unsecured Promissory Note

Knowing your borrower is very important when issuing an unsecured promissory note. A borrower with good character that might have credit issues is someone to consider. Knowing the note is unsecured poses a risk to the lender. On the flip side, it gives the lender the opportunity to charge a higher interest rate and make a better return on their money.

Step 1 – Repayment Type

The most important aspect about an unsecured promissory note is how the money will be paid back to the lender. Below are the following repayment types.

Installments – The most popular repayment schedule type. Gives the lender a good feel as to how the borrower is making good on their word. If there is a problem, the lender will know if the borrower misses an installment payment.

Interest Only payments – Only select this repayment type if the borrower has a good reputation or credit score. Borrower will only make payments on the interest of the loan until the due date, in which the entire loan amount needs to be paid.

Lump Sum (Due Date) – Choose this repayment type if there are no plans for the borrower to pay interest or make installment payments.

Step 2 – Fees and Default

Even though this is an unsecured notes, there still needs to be repercussions if the borrow misses a payment or fails to comply with the terms in any way.

Interest Fee – This note gives the borrower 15 days to correct a default before the lender can charge interest on the amount due.

Late Fee – Allows the lender to set a customized day count after the date the payment is due. If the borrower fails to pay after said days, the lender can charge a late fee.

Step 3 – Conclude Agreement

Before signing the note, make sure to read the document in its entirety (only 3 pages long). If you want to make changes to the language in the document, download in Word. The principal sum is the amount lent to the borrower, make sure this number is correct. When both parties are in agreement, sign the note and include 2 witnesses.

Unsecured Promissory Note VS. Secured Promissory Note?

Whether you are a lender or a borrower of a loan, it’s important to understand the difference between what makes a promissory note secured versus unsecured. They often look identical and include most of the same things you would expect from a promissory note. However, there is one big difference between the two. An unsecured promissory note is only a document stating that the borrower “promises” to pay back the amount due. There is no collateral or other form or security for the lender if the borrower were to default on the loan.

A Secured Promissory Note does have collateral in place in case the borrower can’t pay back the loan. Collateral can be a house, a car, financial accounts, or other equitable assets. Whatever the collateral may be, the secured promissory note lists what it is and states that the lender can collect the specified assets when the loan goes into default. This provides a degree of assurance to the lender to protect their own interests and investments. This is especially the case with big lenders such as banks and credit unions.

Can I Enforce an Unsecured Promissory Note?

Though an unsecured promissory note doesn’t have collateral attached to it, a lender can still collect from a defaulting borrower. You can send a demand for repayment to the borrower, file a suit in court, or enlist the help of a collection agency. An unsecured promissory note is still a legally-binding document after all.

The risk is that even if your party takes these measures to collect payment, it often comes with additional fees that may cut into your investment. And even if you take these routes, there are no guarantees that the borrower can pay back the loan in full. So you might suffer a loss.

It’s important to be sure before signing an unsecured promissory note that the lender is willing to take the risk and that the borrower is capable of paying back the loan. When everything is prepared properly, an unsecured promissory note can make the loan filing process quick and efficient.

 

How To Write

1 – The Template To Document An Unsecured Promissory Note Properly Must Be Accessed And Saved

You can obtain a usable PDF or MS Word version of this template by selecting the appropriately labeled buttons included with the displayed image on this page. You will need to supply some basic information regarding this situation however, this can be done easily with either the correct editing program or by printing the PDF version from your browser then filling it out by hand.

2 – A Brief Introduction Of The Borrower And Lender Is Required

Initially, we will need to make sure that some basics are solidified before we discuss the specifics of this loan. This will be handled in the first paragraph. Begin by entering the calendar date that will be used when referencing this paperwork across the first three blank spaces. The full name of the individual that will receive a loan through this paperwork should be furnished to the blank space labeled “Name Of Borrower.” Now, you must enter the complete address where the borrower maintains a residence on the next empty line (labeled “Address Of Borrower”). This statement will require the Borrower’s physical address therefore, you must make sure to report his or her building number, street name, (if relevant) apartment number, city, state, and zip code. The area following the Borrower’s reported information will require the Lender’s information. The space just before the bracketed label “Name Of Lender” will require the name of the entity providing the loan we will define below. Record his or her full name on the space just before the bracketed label “Name Of Lender.” The Lender’s address also needs to be supplied to this statement as well. Thus, make use of the space labeled “Address Of Lender” to document the Lender’s street address, city, state, and zip code. Next, we will complete this statement by defining the loan being made. Locate the empty line between the phrase “…The Principal Sum” and before the word “Dollars…” then, record the full amount of the loan the Lender is providing the Borrowing on it. Write this value out. Re-enter the full amount being loaned numerically on the next blank space. The next two blank spaces will need the interest being charged per annum. Furnish this information by writing out this percentage on the space after “…Unpaid Balance At A Rate Of” then record it numerically in the parenthesis containing the percent symbol.

3 – Produce Some Simple Information To Supplement The Defined Articles

Several articles are included in this paperwork so that you will be able to quickly report the facts defining the specifics of the loan being made. The first article will be titled “1. Payments” and will have two components. First, you will mark one of the three first checkbox statements to define whether the Lender will be exempt from making payments, pay “Installments,” or make “Interest Only Payments.”

If the Borrower will not be obligated to make any payments until he or she is due to pay the loan amount (plus interest) then mark the checkbox labeled “No Installments” Should the Borrower be responsible to pay this loan amount and the interest it accrues in “Installments” then mark the box labeled “Installments.” This choice will also require that you write out the dollar amount the Borrower is obligated to pay with each installment on the line before the word “Dollars” and record it numerically in the parenthesis. If the Lender will expect “Interest Only Payments” then, mark the third checkbox. The next part of “1. Payments” should only be supplied with information if the Borrower will be making “Installment” payments or “Interest Only Payments.” Here, you must define when the Borrower must submit a payment to the Lender.

If the Borrower must submit a payment to the Lender once a month, then mark the first checkbox after the statement beginning with the words “If Installments Or Interest Only Payments…” Then, on the blank line preceding the words “…Day Of Every Month” record the calendar day that this payment is due. The next three spaces have been supplied so that you may document the calendar due date of the Borrower’s first payment. If the Borrower must make payments once a week, then mark the checkbox attached to the words “Every Week Beginning…” then document the first due date the Borrower must satisfy across the three blank spaces provided. The second article, “2 Due Date,” will solidify when the full amount of the loan plus any owed interest must be received by the Lender from the Borrower. Fill in the calendar day, month, and year when all such payments must be completed in full. Once, these first two articles have been completed we will turn our attention to the third article (“3. Interest Due In The Event Of Default”). You must supplement the language in this article with the interest rate (per annum) the Borrower will pay in addition to the loan by recording this percentage by writing it on the first blank space and presenting it numerically in the second blank space. Both parties should become familiar with the previous three articles as well as the fourth and fifth ones (“4. Allocation Of Payments” and “5. Prepayment”). The next article requesting information is “6. Late Fees.” First, document the grace period the Lender will allow the Borrower for each payment on the first blank space. This is the number of days the Lender is willing to wait for a payment to be received late without enforcing a penalty on the Borrower. Locate the term “…then A Late Payment Fee Of” and supply the additional dollar amount that the Borrower must submit with the delinquent payment to the blank space that follows these words. The next article, “7. Acceleration,” will seek to define when the Lender will consider this loan in default. If the Borrower fails to make a payment then fails to communicate then the Lender will almost definitely issue a notice that payment must be submitted. Enter the number of days with no Borrower response after the Borrower has received such a notice that the Lender must wait before declaring this loan in default and (legally) demands full payment of the loan, interest, and any additional late fees. Articles eight through fourteen should be read to comprehension by both parties.

4 – Review Your Entries Then Sign This Paperwork Into Effect

This paperwork must be double-checked for accuracy after it has been completed. If you are the Preparer, then make sure to dispense this to both parties well before the time of signing. If you are either the Borrower or the Lender then make sure the other party signing this document has ample time to review its contents. Once, it can be verified by both the Borrower and the Lender as an accurate depiction of the loan agreement they intend to engage in, they must sign it. Before doing so, the calendar date when this document is being signed will have to be properly documented. This can be done using the first statement in the section labeled “Signature Area.” Use the first three blank spaces after the words “This Agreement Was Signed The…” to define the signature date of this document.  

Once the signature date has been named, the Lender must immediately sign his or her name on the “Lender’s Signature” line.

Make sure the Lender also prints his or her name on the “Lender’s Printed Name” line.

 

The Borrower will also be required to provide his or her signature. He or she should sign the blank line labeled “Borrower’s Signature.”

The Borrower will also need to print his or her name on the blank line supplied under his or her signature line.

Naturally, some additional verification to the authenticity of these signatures is required. There will be two sets of Witness lines (“Witness’s Signature” and “Wintess’s Printed Name”). This will allow each of the two Witnesses who have watched the Lender and Borrower sign this document to sign and print their names as a testimony to this observation.

 


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