How to Write a Promissory Note

By Renee Gerber , last updated January 28, 2012

A promissory note is, without a doubt, one of the most important documents you will ever draw up. Quite simply, if you make a loan to another person, whether it be a family member, friend or acquaintance, you will have to draw one up so that you can be assured of being paid back. A promissory note actually serves to protect both parties. The lender seals the fact that they will legally be paid back, while the lendee can be assured of not being charged any unreasonable interest rates when they pay money back in a timely manner.

Individuals in business regularly write promissory notes, too. It is simply the best way to be assured of the other party paying you your money back, even if it was a small amount you loaned them. A promissory note can be a professionally-made document or a handwritten one. In the case of a personal loan between friends or family members, it doesn't matter if you draw a promissory note up on notebook paper in pen. The important thing is to actually create the document.
Drawing up a Promissory Note
That being said, the very first thing you should do in creating your promissory note is to record the date somewhere on the top of the page. You should probably begin this on the day you make the loan to the other person. The date tells you exactly when the transaction took place, and when you agreed on the contract. Remember that a promissory note is indeed a contract, even if it was not created by lawyers. As a matter of fact, it is only appropriate to bring lawyers into the picture when you are lending out a particularly large amount of money, say, one that reaches into the tens of thousands, as that much cash is nothing to joke about.
Details to Include in Your Promissory Note
Next, write down that you are lending this particular person a certain amount of money. Include your own name as well as that of the individual who is borrowing it from you. Record in the promissory note the amount of money involved in the loan, the date the loan was made, regardless of whether the date you wrote on the top of the page is the one in question, and the date when you expect the borrower to pay you back.
For both your safety, as well as that of the person to whom you made the loan, you should always include the nitty gritty details. This means that you must mention in the promissory note such things as whether you have agreed upon a specific payment plan. For instance, if you made a loan of $5,000 to the individual, but they aren't certain they would be able to pay it back in full at the date you agreed on, you can create a payment plan, where they pay you back in increments of, say, $500 per month until they have fully repaid. This is up to you and is a fair way to do business with a friend or family member.
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