How to Create a Promissory Note

A promissory note is a legally binding document in which one party agrees to repay a specific sum to another party by a specific date. The note may also specify the method of payment. The contract is simple and can be created by the signing parties to reflect their agreed upon terms.

Step 1

Specify a date. This date should appear at the top of the page. It will serve as the effective date of the promissory note.

Step 2

List the parties to the promissory note. Specify the name of the lender, or person making the loan, and the borrower, the person who has the obligation to repay the loan debt. Include full names and addresses.

Step 3

State the amount of loan. This the total sum that the borrower will repay to the lender, including added interest.

Step 4

Establish a payment schedule for the loan. For example, the first payment may occur 30 days from the date of the loan and on regular intervals thereafter. Or, the parties may decide upon a different pay schedule that fits their particular situation, including a lump sum payment. Also indicate if there is a grace period before the first payment is due.

Step 5

Detail clearly the date by which the loan must be repaid in full, or if its set up in installments, the date the last payment must be received.

Step 6

Stipulate any collateral that may be used to secure the note, if applicable, and how that collateral may be sold or liquidated in the event the borrower does not repay the loan.

Step 7

Include any default provisions that may be applicable, such as an agreed upon fee if a payment is late.

Step 8

Add signature lines at the bottom of the promissory note. Once the note is agreed upon, the parties should sign and date the note. Make a copy of the note and give one to each party. Each party should keep the notes until the debt is paid off. Once paid in full, the lender should give a receipt to the borrower to indicate the debt has been satisfied.

Items you will need

  • Word processing software
  • Printer
  • Signatures of parties

Tip

  • Consider having a third party witness the signing of the promissory note between the parties, such as a notary. After the parties have signed, the witness will also sign the note on a line below the party signatures. Beneath the witness signature should appear the printed name of the witness and the date. The witness may keep a copy of the signed promissory note for his records as well.

Warning

  • Consult with an attorney prior to signing the promissory note if either party believes the situation warrants legal advice.

About the Author

Mack Mitzsheva is a tax lawyer, personal finance expert and the author of the forthcoming ebook, "10 Best Places to Work Online." Mitzsheva is also a social media entrepreneur with five successful sites under her belt. Always innovative, Mitzsheva is currently developing a cutting-edge budgeting app for newlyweds.

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