A promissory note is a written, signed promise by a borrower to repay a set amount of money to a lender, on terms written into the note. People use them for loans between family and friends, a partner lending money to their own small business, or a buyer paying a seller in installments. Our free promissory note template is a simple, plain-English version for those everyday loans.
When do you need a promissory note?
You need one whenever you lend money you’d like back. That sounds obvious, but plenty of loans between people who trust each other are done with a bank transfer and a text message, and that’s where things go sideways. Six months later, nobody remembers whether it was $6,000 or $8,000, whether there was interest, or when it was due.
Say, hypothetically, your sister lends your bakery $15,000 to buy a new oven, repayable over three years at 5% interest. A one-page note turns a family favor into something you can both point to, and it helps if anyone else (a tax preparer, an estate, a buyer of the business) ever needs to know the loan exists.
A simple note is the wrong tool in a few cases. If a bank or professional lender is involved, they’ll use their own documents. If the loan will be secured by real estate, you’ll need a mortgage or deed of trust too, usually with a lawyer and recording. And if the money is really an investment in exchange for a share of profits, that’s closer to a partnership agreement than a loan.
What should a promissory note include?
Our sample promissory note has these parts.
The parties, amount and date
Who is borrowing, who is lending, the principal amount (the money actually handed over), and the date the loan is made.
Interest
The annual interest rate, or zero if it’s interest-free. The template calculates simple interest on the unpaid balance, which is easy for both sides to check.
Repayment
Choose one of three shapes: equal installments on a schedule, a single lump sum on a due date, or payment on demand. Write the payment amount, the day of the month it’s due, and how it’s paid.
Prepayment
Whether the borrower can pay early without a penalty. Our template says yes, because that’s the fair default for a personal loan.
Late payments and default
A grace period, an optional late fee, and what counts as default (missing a payment by a set number of days after written notice, or the borrower going bankrupt). On default, the lender can ask for the whole balance at once. That’s the standard “acceleration” clause, and it’s there so the lender doesn’t have to sue for each missed payment separately.
Collection costs
If the lender has to take legal action, the borrower pays reasonable collection costs and attorney fees, to the extent the law allows.
Signatures
The borrower must sign. Our template has the lender sign too, so both of you have confirmed the same terms.
What should you check for your state?
Check your state’s interest limits before you set a rate. Usury means charging interest above the legal ceiling, and as Cornell’s Legal Information Institute explains, usury is usually defined and enforced by state statutes, and the limits differ from state to state. Cornell’s page even notes that at least one state, Nevada, has no usury law at all, which shows how far apart the rules can be. If you’re charging more than a modest rate, look up your state’s rule or ask a lawyer before anyone signs.
If you’re lending a significant amount to a family member at a very low or zero rate, it’s also sensible to ask your tax preparer whether that creates any tax reporting for you.
How do you fill in the promissory note and get it signed?
- Download the template and fill in the names, amount, rate and repayment choice. Delete the options you’re not using.
- Add a payment schedule if you’re using installments. A simple table of dates and amounts avoids confusion.
- Read it through together before anyone signs. If the numbers don’t match what you agreed out loud, fix them now.
- Sign. Then hand over the money by a traceable method, such as a bank transfer, so the note and the transfer match.
- Keep a record of every payment.
On e-signing, here’s the honest version. The federal ESIGN Act makes most electronic contracts valid, but its exceptions include most of the Uniform Commercial Code, and negotiable promissory notes fall under the UCC’s Article 3. ESIGN also has a separate section on electronic “transferable records,” which only applies to notes relating to loans secured by real property. Our template is written as a simple, non-negotiable personal loan note, and many people e-sign notes like this without trouble. But if the note will be secured by property, sold to someone else, or used with a bank, sign it the way the lender or a lawyer tells you to. The background is in are electronic signatures legally binding and documents you can’t sign electronically.
Download it, fill in the blanks, and send it for e-signature with any tool you like. (We’re building SignWren for exactly this; join the waitlist.)
This page is general information, not legal advice. For a specific contract or dispute, talk to a lawyer licensed where you are.