Free Promissory Note Forms

A promissory note is an acknowledgment of debt with a written and
unconditional promise to repay a loan or debt in a specified manner and within a specified timeframe.
It may also be called a personal loan agreement.

An IOU on the other hand, only acknowledges that money is owed, but makes no promises on how or when the loan will be repaid.

hourglass and coins illustrating loan agreement

Our selection of free promissory notes and loan agreements can be downloaded instantly and used as templates or sample documents to compile your own Notes.

types of promissory notes

However! It is always advisable to consult with an attorney to ensure your documents meet all the legal requirements in your jurisdiction.

Important Note: Refer to our guidelines further down on this page as to the permissible interest charges and late fees, to ensure you stay within the legal allowable percentage as per usury law.

We also discuss the advantages of a secured loan (vs an unsecured loan) and having co-signors or a guarantor for your loan.

Free Promissory Note Templates and Related Free Legal Forms:

Interest Charges and Late Fees

It is acceptable practice to charge interest or late fees on loans. The maximum allowable percentage is determined by usury law in your state or country.

Contravening usury laws by charging unacceptably high interest may be a criminal offense. If a court rules your rates as unlawful, all the interest payments on the loan may be offset against the principal loan amount.

The interest rates charged by banks, credit card companies, pawn brokers etc. may be higher than that allowed between individuals and cannot be used as benchmark.

Learning institutions such as colleges or universities will typically not charge any interest on a Note, provided the amount is repaid by the specified date. Any amounts outstanding by the due date may then be charged to the student's credit card and thereafter collection will be by the banking institution at their applicable rate of interest.

You can extend an interest free loan to a family member or friend as in a Personal Promissory Note. However, the Receiver of Revenue may "assume" that you collected interest and tax you accordingly.

To avoid being taxed on unearned interest, you can treat the unearned interest portion as a tax-free gift, but you need to:

  • Document your loan as interest free
  • Ensure that the total interest (as would normally be applicable) does not exceed the amount permissible for tax-free gifts in a calendar year.
    (US Gift Taxes)

Secured Loans vs Unsecured Loans

If the borrower were to petition for bankruptcy or is declared bankrupt, any available money (from the sale of assets etc.) will first go towards secured loans. So, if your loan agreement is unsecured and there are no co-signors or guarantors to assume responsibility, you may not be able to collect any money.

For smaller or personal loans, the borrower may offer tangible goods such as jewelry, electronic equipment, a vehicle etc. as collateral to secure a loan.

Do You Need to Register or File a Promissory Note Anywhere?

A UCC (Uniform Commercial Code) filing serves as public record that the goods described are attached as security or collateral against a Note.

In the case of large business loans or real estate loans, you must consult with an attorney. It is vital that a UCC is filed against business loans. Your lawyer will ensure that corporate shareholders or limited liability members personally guarantee any loans.

Real estate loans must be protected with a mortgage or lien which must be filed with the county recorder's office or deeds office.

Co-signors and Guarantors for a Loan Agreement

Promise to Pay the Sum of

As added security for a loan, you may require/demand that more than one person sign the PN, e.g. husband and wife, student and parents. As co-signors they will then be held jointly and severally responsible.

Alternatively, or in addition, you may have a separate guaranty agreement with a person who will assume full responsibility for repayment of the loan, should the original borrower(s) default.

Before you sign as guarantor to a loan, you need to verify whether you are guaranteeing a once-off fixed amount (with specified interest) or the ongoing indebtedness of a business operation.

In the second ongoing instance, the onus is on you to monitor the balance sheet and to notify creditors timeously to withhold further extension of credit. Have your guaranty agreement reviewed by an attorney to ensure that you understand and agree to the conditions therein.

As guarantor you cannot cancel a guaranty agreement and will remain liable until the loan has been repaid in full and the note released.

Transferring a Promissory Note

A PN is a negotiable instrument (if properly executed) where the lender can sell, assign, donate, transfer etc. the note to a third party, who becomes the holder in due course.

This may be done without obtaining permission from or giving notice to the borrower, although the borrower should be made aware of this possibilty at the time of entering into the loan agreement. The borrower then becomes obligated to the third party for repayment of the loan.

The reverse is not true. The borrower may not transfer the obligations of the Note to another party without prior written consent from the lender.

Lost Notes

If a Note is lost, stolen, destroyed or damaged, it does not release the borrower from repayment of the loan. To avoid possible disputes, the lender should store a notarized copy in a safe place.

The lender should also inform the borrower that the original Note may be in someone else's possession - who may demand payment fraudulently - and not to make any payment to such a person.

Take a look at the wording in our Affidavit of Lost Promissory Note to see how this works.

Our sample Promissory Notes also make provision for a replacement Note to be executed in case of loss or damage.

Must a Promissory Note be Notarized to be Legal?

The short answer is no. If all the parties who are signing have legal authority to do so, then the note is legally binding.

However, as irrefutable proof of your Note, you should have it witnessed by a notary public. If you choose not to have it notarized, you should have it signed by independent witnesses. The lender must not sign as witness.

Having it signed by witnesses is not a legal requirement for a note to be enforceable. But should a borrower ever denies having signed a note, it will be useful to have witnesses to call upon to testify about the validity of the signature.

By the same token, a note can be handwritten and need not be printed out or on a specially designed form.

Payments Received

The borrower must insist on written receipts of payments made, especially in the case of cash payments. Canceled checks, internet payment remittances or bank deposit slips must be stored safely for record keeping. Upon full and final settlement of the loan, a written release must be issued.

Please refer to our Free Legal Forms page for a complete list of all the free contracts available on our site.

Descriptive Titles and Terminology used on a PN

The person or entity supplying the goods, money or a service can be called the noteholder or bearer, lender, creditor, payee, promisee, obligee, seller, service provider.

The person or entity who must repay the loan can be called the maker of the Note, borrower, debtor, payer, promisor, obligor, buyer, endorser, customer.

Co-signors of the Note are equally responsible for repayment of the loan.

Guarantors will enter into a separate guaranty agreement with the lender.

The Fine Print

Before you enter into a personal loan agreement or sign a promissory note (or even an IOU), be sure that you understand the descriptions, terms and conditions. You must reserve the right to repay the loan sooner than stipulated (prepay) without incurring penalties or being liable for all the interest as calculated over the initial term of the loan.

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