How to Write a Promissory Note When Someone Owes You Money

A promissory note is a written agreement that the borrower will repay a specific sum of money by a set time. Although many promissory notes are prepared by attorneys, financial institutions and lenders prepare their own. You can write your own promissory note to document another's debt to you, and the court will uphold it as long as it contains the necessary legal elements. When you write your promissory note, clearly disclose all the terms of each party's responsibilities.

Step 1

Gather the information needed to satisfy each legal requirement. The promissory note must identify the lender and borrower, the amount of the loan, the interest rate of the loan, the repayment terms and the date repayment is due. Research your state’s usury laws to find out the maximum legal interest rate you can charge the person who owes you money. You will not be able to enforce a promissory note in court if the note’s interest rate exceeds the legal limit.

Step 2

Begin your promissory note by identifying the date the note will be signed, your legal name as the lender and the borrower's legal name, your address and telephone number -- as well as the borrower's -- and the loan amount. For example, you could write, “On Jan. 10, 2013, I, John H. Doe, residing at 111 Oak Lane, My Town, My State, telephone number 111-111-1111, promise to pay back in full the borrowed sum of $10,000 (Ten thousand dollars and no cents) plus interest to Jane A. Smith, residing at 555 Walnut Drive, Her Town, Her State, telephone number 555-555-5555.”

Step 3

List the promissory note terms as specifically as possible in the next paragraph. State the loan amount, the interest rate and the loan repayment terms. If the loan will be repaid in a lump sum, state the date the payment is due and the full amount to be paid. If the loan will be repaid in installments, list the date the payment is due, the payment amount and how many payments the borrower will make to you.

Step 4

Looking at an installment loan example, you could write, “The first payment, including interest, in the amount of $1,100 (One thousand one hundred dollars and no cents) is due on Feb. 1, 2013 and on the first day of each month after, until the amount is paid back in full.”

Step 5

In the next paragraph, note any penalties or fees you will charge if the borrower is late making the payment. You could write, “If I, John H. Doe, fail to repay the loan by Dec. 31, 2013, I agree to pay an additional penalty of 10 percent of the loan amount along with the original loan amount.” Drop down a couple of lines and type signature lines for your name, the borrower's name and the name of a witness. Leave space below the signature lines for the notary to attest to the promissory note signing.

Tip

  • Verify whether your state requires a notary public to notarize the promissory note.

Warning

  • Make sure you keep the original signed promissory note and provide the borrower with a copy.

Photo Credits

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About the Author

Based in St. Petersburg, Fla., Karen Rogers covers the financial markets for several online publications. She received a bachelor's degree in business administration from the University of South Florida.

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