How to Make a Promissory Note

If ever you have someone like a friend or even an acquaintance who wishes to borrow money from you, then obviously you want to make sure that this person is able to pay you the money back. You have to come up with a sample agreement that this person will pay you back on a certain date or else certain consequences will ensue.

And that’s the reason why there are promissory notes. This will outline everything from how much the borrower owes and until when he/she has to pay everything back. This article is going to focus on how you are going to create such a note.

Promissory Note Credit Loan Agreement Form

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Convertible Promissory Note Purchase Agreement Form

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Promissory Note Loan Extension Agreement Form

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Promissory Note Modification Agreement Form

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Promissory Note Security Agreement Form Sample

promissory note security agreement form sample

How to Write a Promissory Note

The point of having this note is to ensure that a debt is repaid. This kind of document is legally enforceable and it will help ensure that you are able to collect the money that you are owed. So here are the steps that will allow you to create a valid promissory note:

1. Meet the Requirements Required to Create the Document

In order to be enforceable, certain elements must be included to validate the document as a promissory note in a word. If you don’t have any of them, then you won’t be able to collect the money that you are owed:

  • The amount of the loan or the amount of money that is being borrowed
  • The repayment dates. The date or dates in which the necessary sample payments for the debt needs to be paid.
  • Interest rate. The rate charged or paid on borrowed money. Interest rates are calculated in terms of annual percentage rate or APR.
  • The total amount of money owed after the interest has been applied.
  • The collateral that will be used for any unpaid payments. List any goods or services and the value used that will be utilized as a guarantee whenever the debt has been left unpaid. You may also like promissory note forms.
  • Terms for late or missed payments, if applicable.
  • Default terms. This is basically what will happen if the borrower fails to make the payments in a timely manner.
  • The signature of the borrower and the people that he/she has borrowed money from

2. Write Down the Terms of Agreement

These are the terms that the borrower and lender have agreed upon covering each of the elements that have been mentioned above. You can always find agreement forms that will help you create what you need by doing a quick Google search and looking up “Promissory agreement notes or forms”

  • You’ll want to include information such as a payment schedule with specific due dates in the note if the debt will be repaid in either weekly or monthly payments.

3. Decide Whether You Would Want a Secured or Unsecured Promissory Note

If you’re going to go with a secured promissory note, then this is basically where the borrower will provide you with a list of goods, property, or services that will be used as collateral in the event that he/she fails to pay back the debt on time. You have to be sure that all of these things are of equivalent value to the amount of money that the borrower owes you. An unsecured promissory note is the exact opposite where the borrower doesn’t have to give you anything, but the interest rate for the payment will be high as a form of security for the lender. Also, if you’re going for an unsecured free promissory note, you’re going to have to make sure that this person is always able to pay back his/her debts on time. It’s best that you ask for the borrower’s credit history where you can take a good look at his/her credit report to see if he/she has any delinquent payments.

4. Make the Promissory Note Enforceable

You have to make sure that you have everything that you need so that the promissory note is legally enforceable in court. So the body of this particular document will have to include:

  • The complete and legal names of all the parties involved who have vested interest in the transaction
  • Address and contact details of all the parties that are involved in the transaction, this includes the lender’s
  • The signature of the borrower and the witness. The signature of the lender may not be required, but this will entirely depend on the laws of your state or country. You may also like loan promissory note.
  • Purpose. What the money is going to be used for. This requirement will also depend on the laws of your state or country

5. Inform the Borrower of the Right to Transfer Clause

The borrower has every right to be informed that the promissory note can be transferred by the lender to a different party. All of the original terms and a simple agreement will still take place, but the payments that the borrower will have to make will go to a different entity.

6. Inform the Borrower of the Right to Cancel

Most states require that a borrower have three days to cancel the note (not take out the loan) from the initial day that they have signed the general promissory note. There has to be another document that the borrower will sign that will inform him/her about this right.

7. When the Loan is Paid in Full, Issue the Release of Promissory Note

This should signify that both parties have fulfilled their commitments of the promissory note. With the help of release, it will prevent any future disputes and lawsuits. You may also like convertible promissory notes.

  • If it was a secured promissory note and collateral was involved, make sure that any liens are canceled or terminated.

8. Collecting on Unpaid Notes

There’s always that chance that the borrower will fail to pay the debt on the agreed amount of time. No matter what reason that may be, the fact that the borrower was unable to pay the debt means that you’re going to have collected the money in some other way or that you’ll have to take certain legal action. So here are the steps that will help you deal with unpaid notes. You may also like master promissory note.

9. Write Demand Letters if the Payment Has Not Been Made on the Due Date

If you’re going to create a demand letter, then you have to make sure that you use language that clearly points harsh legal action if the borrower does not pay whatever he/she owes. Make sure you include a date that the borrower must pay to avoid legal action and any loss of collateral if you made a secured promissory note.

10. Demand the Collateral if the Secured Note is Left Unpaid

A default of payments on debts by a secured note requires that the person who borrowed the money must forfeit whatever items that he/she has placed as collateral to the lender. You might just need to settle this matter in court in the event that the loan or the collateral is not paid by the due date. Again, you have to make sure that the collateral is equal or greater to the loan in terms of value. This way, you’re ensured that you’re able to get your money’s worth. You may also like promissory notes.

11. Take the Borrower to a Small Claims Court

If you’re owed a modest sum, let’s say around $5000 or less, then this is an inexpensive option. You will have a better chance of receiving some of the funds owed on an unsecured note without having to resort paying an attorney or making any court fees. You may also like blank promissory note.

The Reason for Having a Promissory Note

Whenever you have a friend, family member, or even your life partner who wishes to borrow a good amount of money from you, yet you want to make sure that this person is guaranteed to pay you back, then the promissory note sample should help ensure that is so.

It’s basically a contract agreement wherein both parties understand what’s going to happen should the debt be unpaid, as well as the terms of payment and the amount that the borrower will have to pay back. This is very useful in reminding the borrower that should he/she fail to pay back whatever it is he/she owes the lender, then there will be immediate legal consequences.

Plus, it’s a form of security for the lender. As mentioned before, if you go with a secured promissory note, then you’ll be guaranteed collateral if the borrower fails to make any of the necessary payments or decides to no longer pay back the debt. If it’s unsecured, then the interest rate of the payment will be much higher. But even if the buyer doesn’t pay, then you can always settle this matter in court and make use of this note as legal evidence that the borrower owes you the amount stated. Just make sure that you have all of the elements of a promissory note and that you have the borrower’s signature.

If you would like to learn more about how you will go about in creating a simple promissory note or anything that’s related to this particular topic, then all you have to do is go through our site, find the articles with the information that you need, and utilize the information that you are able to find to help you out.

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