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Promissory note


The Borrower and the Lender is referred to individually as “Party” and collectively as the “Parties”

This Agreement (the “Promissory Note”) is entered into and made valid upon signature by both Parties (the “Effective Date”)

The Lender agrees to a loan to the Borrower for the sum of [Insert Amount of money as loan], (the "Principal Sum") with interest at the rate of [Insert interest rate denoting a percentage] per annum (the "Interest") on the unpaid principal in accordance with the terms and conditions set forth below:

1. Terms of repayment:

  1. General Repayment: The Principal Sum plus all accrued interest will be paid back in full on [Insert date on which the amount is to be paid back] ("Due Date"). The Parties, between them, shall agree upon a payment method and structure, but the Borrower shall ensure that the entirety of the Principal Sum and all interest will be returned by the Due Date.
  2. Past Due Interest: If the Due Date passes and the entirety of the Principal Sum with accrued interest has not been paid back, a higher interest rate of [Insert higher rate of interest denoting a percentage] per annum on the unpaid amount will be charged until all the funds owing are recouped in full.

2. Default:

The following events constitute default of this Promissory Note and upon their occurrence, the entirety of any remaining amount due shall become immediately payable:

  1. Borrower's insolvency;
  2. Borrower's death, incompetency; liquidation, or dissolution;
  3. Borrower's making of a general assignment for the benefit of Borrower's creditors;
  4. Borrower's filing of any bankruptcy proceedings; or
  5. Any application for the appointment of a receiver for Borrower.

3. Collection costs:

Should the Borrower default on completing any obligation contained within this Promissory Note, including, but not limited to, if any of the circumstances in the Default provision occur, the Lender may declare the entire amount remaining due immediately. Any and all costs or expenses incurred by the Lender in enforcing the obligations of this Promissory Note as a result of the Borrower’s default, including any legal fees or costs, will be added to the remaining amount due and must be paid immediately by the Borrower.

4. General Provisions: 

  1. GOVERNING LAW: This Promissory Note shall be governed in all respects by the laws of the state of [Insert name of the state] and any applicable federal law. Borrower consents to jurisdiction under the state and federal courts within the state of [Insert name of the state]. Borrower agrees that this choice of law, venue, and jurisdiction provision is not permissive, but rather mandatory in nature.
  1. AMENDMENTS: This Promissory Note may only be amended in writing signed by both Parties.
  2. ASSIGNMENT: This Promissory Note, or the rights granted hereunder, may not be assigned, sold, leased or otherwise transferred in whole or part by the Borrower.
  1. NOTICE: Notice shall be given to either Party at the addresses listed at the top of this document, through certified mail, return receipt requested or at the following email addresses. Notice is deemed given when sent:

Borrower: [Insert e-mail address of the borrower]

Lender: [Insert e-mail address of the lender]

5. Binding:

This Promissory Note will inure to the benefit of and be binding upon the respective successors, assigns, heirs, executors and/or administrators of the Borrower.

6. Headings:

Headings to this Promissory Note are for convenience only and shall not be construed to limit or otherwise affect the terms of this Promissory Note.

Template does not constitute any form of legal advice, and the User is at all times encouraged to request external specific legal advice in respect of the execution of legal documents.
Promissory note

Get your free promissory note template here. Designed for loans that only bind the borrower to actions, ensuring clear and concise terms.

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What is a promissory note? 

A promissory note differs from a loan agreement because it only binds one party, the borrower, to actions (such as payment) or consequences (such if the borrower doesn't pay). It doesn't bind the lender to anything. Lenders don't even sign promissory notes; only borrowers do.

Promissory notes are often used in place of more formal loan agreements when a loan is made informally between friends or family members. They can even sometimes be used between very small businesses.

When to use a promissory note

This document can be used in any situation where an individual or business borrows money from another individual or business but is best used when money is being loaned somewhat informally between family and friends. This is because the promissory note is only signed by one party, the borrower, and does not bind both parties to an agreement.

  • Business Loans: These provide capital for starting a new business or expanding an existing one. They can cover various expenses, such as equipment purchases, inventory, or operating costs.
  • Vehicle Loans finance the purchase of vehicles, including cars, trucks, boats, or other motorized vehicles. The loan amount typically covers the vehicle's purchase price, and the car is collateral.
  • Real Estate Loans: These loans are specifically for purchasing real estate properties, such as a home, land, or commercial building. They can include mortgages for home purchases, construction loans for building projects, or investment property loans.
  • Debts or Bills: Loans can also consolidate existing debts or cover outstanding bills, such as credit card debt, medical expenses, or personal loans. Debt consolidation loans combine multiple debts into a more manageable loan with lower interest rates.

What does a promissory note include? 

A promissory note will contain the basic details of the loan, such as the amount and when the total amount is due. It also includes the identifying information of both parties: the name and address of the individual borrower and lender or the business name and business address of a company borrower or lender.

This promissory note will also determine the biggest issue with the loan — whether or not interest will be charged.

Should I use a promissory note or a loan agreement?

Choosing between a promissory note and a loan agreement depends on the nature of the loan and the parties involved. Promissory notes are suitable for loans from non-traditional lenders, such as individuals or companies, often for short- or long-term personal or business needs. They outline the basic terms of the loan and the borrower's promise to repay.

On the other hand, loan agreements offer a more comprehensive framework, ideal for larger loans or those involving multiple lenders. They detail the entire agreement, including additional expenses, conditions for amendments, and other pertinent clauses. Loan agreements provide greater clarity and protection for all parties involved in the lending arrangement.

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Promissory note
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Key Terms of
Promissory note

This promissory note agreement outlines the terms under which a lender agrees to provide a loan to a borrower. It specifies the principal sum, interest rate, repayment date, default provisions, governing law, and other general terms. The borrower agrees to repay the principal plus interest by the due date, or face higher interest rates and potential legal action for default.

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