A promissory note is a do-it-yourself type of contract completed when one person loans money to another. The form makes a borrower’s “promise” to repay the owed balance official, requiring them to make consistent payments to the lender until the debt is paid in full. Although less complicated than a standard loan agreement, the note includes options for adding a co-signer, establishing security, and mandating late fees.
Definition: “a signed document containing a written promise to pay a stated sum to a specified person or the bearer at a specified date or on demand.” – OED
By State
- Alabama
- Alaska
- Arizona
- Arkansas
- California
- Colorado
- Connecticut
- Delaware
- Florida
- Georgia
- Hawaii
- Idaho
- Illinois
- Indiana
- Iowa
- Kansas
- Kentucky
- Louisiana
- Maine
- Maryland
- Massachusetts
- Michigan
- Minnesota
- Mississippi
- Missouri
- Montana
- Nebraska
- Nevada
- New Hampshire
- New Jersey
- New Mexico
- New York
- North Carolina
- North Dakota
- Ohio
- Oklahoma
- Oregon
- Pennsylvania
- Rhode Island
- South Carolina
- South Dakota
- Tennessee
- Texas
- Utah
- Vermont
- Virginia
- Washington
- West Virginia
- Wisconsin
- Wyoming
Types (2)
Secured Promissory Note – This type requires the borrower to provide an asset (of similar value as to the balance of the note) to “back up” the amount loaned. Should the borrower default on the note, the lender can legally acquire the property the borrower to make up for the unpaid note.
Download: PDF, Word (.docx), OpenDocument
Unsecured Promissory Note – This note does not require the borrower to provide an asset to serve as collateral. In other words, if the borrower fails to pay off the loan as required, the lender cannot seize any of the borrower’s assets to cover the outstanding balance.
Download: PDF, Word (.docx), OpenDocument
Contents |
How to Use a Promissory Note
Step 1 – Set the Terms
The agreement should be completed by the person or company lending the money. If the loan is being provided by an official financial institution (such as a bank), they will decide the terms based upon your credit report and other factors. While the borrower can set the term they prefer, the rate and agreement rules are up to the bank to decide.
For agreements formed between friends, family, and acquaintances, the parties should come together to identify the terms and conditions that work best for them. The questions they will need to decide on include:
- How much is being lent?
- What interest rate will be charged?
- When will the full balance be due?
- What date will the first payment be required?
- How will the borrower make payments?
- Will there be a late fee?
- Will the note be secured?
- Will there be a co-signer?
Step 2 – Secured or Unsecured?
Continuing from Step 1, a major decision the parties will need to make is whether or not to secure the loan. A “secured” loan is one that is backed by an asset such as a person’s home, car, or another valuable belonging. Should the borrower be unable to pay the loan in full, the lender can put a lien on the property which gives them the legal right to claim the property. If the borrower pays off the loan, the lender will lift the lien. Secured loans are often used when money is being lent from a financial institution for large amounts and/or when lending to borrowers with lower than average credit scores.
Step 3 – Complete + Sign the Form
The promissory note can be downloaded and customized, or completed as-is. Regardless of what the lender does with the form, they will need to ensure the agreement answers the basic questions listed in Step 1. See the “How to Write” for detailed information on completing the template.
At a minimum, the note needs to be signed by the borrower. This is unlike a loan agreement, which needs to be signed by both the lender and borrower. Having said, it is highly recommended that the note be signed by both the lender and borrower. To further legitimize the note, the parties can have their signatures notarized and/or witnessed by up to two (2) witnesses (who must also sign the form).
Signatures can be recorded by-hand or by uploading the completed promissory note to eSign.
Step 4 – Collect Payments
The borrower will be obligated to make payments as stated in the promissory note. If the funds were provided by an official entity such as a bank or credit union, they often provide borrowers a means of making payments online. Furthermore, many online lending platforms offer auto-pay, which, if approved by the borrower, make automatic deductions from the borrower’s bank account on a regular weekly, bi-weekly, or monthly basis. For simpler person-to-person notes, the borrower can make payments via cash, check, or an online payment processor such as Paypal.
The lender should keep a detailed record of every payment they receive. Once the borrower pays off the loan in full, the borrower will be absolved from their obligations.
Should the borrower be late on a payment, they should be sent an official payment demand letter. For more personal agreements, the lender can call or email the borrower to understand their reason(s) for missing the payment deadline and collect the unpaid principal and interest.
If the borrower defaults (is over 30 days late on payments), the lender can acquire the property put up as security (if any), or they can take legal action, known as “judgment”.
Maximum Usury Rates by State
| STATE | USURY RATE | SOURCE |
| Alabama | Not in writing: 6% Written agreement: 8% | § 8-8-1 |
| Alaska | Loans above $25,000: 10.5% Loans below $25,000: 5%+ Federal Reserve interest rate | § 45.45.010 |
| Arizona | Not in writing: 10% Written agreement: No limit | § 44-1201 |
| Arkansas | Non-consumer notes: 5% + Federal Reserve interest rate Consumer notes: 17% | § 4-57-104 |
| California | Personal/Family Loans: 10% Other Loans: 10% OR 5% + Federal Reserve Bank of San Francisco interest rate | Article XV “Usury” |
| Colorado | Not in writing: 8% Consumer loans: 12% Max. usury limit: 45% | §§ 5-12-103 & 5-2-201 |
| Connecticut | Limit: 12% | § 37-4 |
| Delaware | Limit: 5%+ Federal Reserve rate | § 2301 |
| Florida | Less than $500k: 18% Greater than $500k: 25% | §§ 687.03 & 687.071 |
| Georgia | Not in writing: 7% $3k or less: 16% $3k – $250k: No limit | § 7-4-2 |
| Hawaii | Not in writing: 10% Written agreement: 12% | § 478-2 & § 478-4 |
| Idaho | Max. rate: 12% Judgment rate: 5% + annual avg. yield of U.S. Treasury securities | § 28-22-104 |
| Illinois | General Usury & Judgment rate: 9% | 815 ILCS 205/4 |
| Indiana | Not in writing: 8% Consumer loans: 25% | §§ 24-4.6-1-101, 24-4.6-1-201, 24-4.5-3-201 |
| Iowa | Not in writing: 5% Max rate: 2% + Avg. 10-yr maturity interest rate of US bonds & notes | § 535.2 |
| Kansas | Legal interest rate: 10% Usury limit: 15% | §§ 16-201 & 16-207 |
| Kentucky | Legal interest rate: 8% Usury limit: 4% + Federal Reserve rate OR 19% (whichever is less) Greater than $15k: No limit | § 360.010 |
| Louisiana | Usury limit: 12% | § 3500 |
| Maine | Legal interest rate: 6% | § 432 |
| Maryland | Not in writing: 6% With contract: 8% Usury limit: 24% | §§ 12-102 & 12-103 |
| Massachusetts | Not in writing: 6% Usury limit: 20% | §§ 107.3 & 271.49 |
| Michigan | Not in writing: 6% Usury limit: 8% | § 334.01 |
| Minnesota | Legal interest rate: 6% Written agreement: 8% | § 334.01 |
| Mississippi | Legal interest rate: 6% Contract rate: 10% OR 5% + Federal Reserve rate (whichever is greater) | § 75-17-1 |
| Missouri | Not in writing: 9% Written agreement: 10% | §§ 408.020 & 408.030 |
| Montana | Not in writing: 10% Written agreement: 15% OR 6% + Prime rate published by Federal Reserve | §§ 31-1-106 & 31-1-107 |
| Nebraska | Legal interest rate: 6% Max rate: 16% | § 45-101.03 |
| Nevada | Not in writing: Equal to the prime rate of largest bank in Nevada Written agreement: No limit | § NRS 99.040 |
| New Hampshire | Max rate: 10% (unless stated otherwise in contract) | § 336:1 |
| New Jersey | Not in writing: 6% Written agreement: 16% | § 31:1-1 |
| New Mexico | Not in writing: 15% | § 56-8-3 |
| New York | Legal interest rate: 6% Usury limit: 16% | GOB § 5-501 |
| North Carolina | Legal interest rate: 8% | § 24-1 |
| North Dakota | Max interest rate: 6% Max contract rate: 5.5% + current cost of money (cannot be less than 7%) | §§ 47-14-05 & 47-14-09 |
| Ohio | Legal interest rate: 8% | § 1343.01 |
| Oklahoma | Not in writing: 6% Written agreement: No limit | 15 OK Stat § 15-266 |
| Oregon | Not in writing: 9% Business/agric. loans less than $50k: 12% | ORS 82.010 |
| Pennsylvania | Legal interest rate: 6% | 41 P.S § 201 |
| Rhode Island | Max rate: 21% OR 9% + domestic prime rate | § 6-26-2 |
| South Carolina | Legal interest rate: 8.75% Written agreement: No limit | § 34-31-20 |
| South Dakota | Not in writing: 12% Written agreement: No limit | §§ 54-3-4 & 54-3-16(3) |
| Tennessee | Legal interest rate: 10% (unless stated otherwise in contract) | § 47-14-103 |
| Texas | Legal interest rate: 10% (unless stated otherwise in contract) | § 302.001 |
| Utah | Not in writing: 10% Written agreement: No limit | § 15-1-1 |
| Vermont | Legal interest rate: 12% Other rates: See statute | 9 V.S.A. § 41a |
| Virginia | Legal interest rate: 6% Written agreement: 12% | §§ 6.2-301 & 6.2-303 |
| Washington | Legal interest rate: 12% OR 4% + Avg. rate for 26-week treasury bills | § 19.52.020 |
| West Virginia | Not in writing: 6% Written agreement: 8% | § 47-6-5 |
| Wisconsin | Legal interest rate: 5% | § 138.04 |
| Wyoming | Not in writing: 7% | § 40-14-106 |
How to Write
Download: PDF, Word (.docx), OpenDocument
Step 1 – Start Date
- 1 – Enter the date (mm/dd/yyyy) the promissory note is being written. This will be known as the official “Start Date” of the note.
Step 2 – Borrower & Lender Info
- 2 – The full (first + last) name of the borrower. This is the person that is receiving the money from the lender.
- 3 – The borrower’s full mailing address.
- 4 – The full name of the person or institution lending the money.
- 5 – The lender’s mailing address.
- 6 – The amount ($) of the loan. Write this value word-for-word. Ex: “Two-thousand dollars”.
- 7 – The amount ($) of the loan, written as a number. Ex: “$2,000.00”.
- 8 – The loan’s interest rate. This is the money the borrower is “paying” in order to be loaned the money.
Step 3 – Payments
- 9 – The date (mm/dd/yyyy) the loan must be paid in full by, known officially as the “Due Date”.
- 10 – Select whether the balance will be paid in a single lump sum (all at once), or through multiple payments.
- 11 (Lump Sum) – If “Lump Sum” was selected, enter the amount the borrower will be required to pay (interest included). Write the value word-for-word. Ex: “Two-thousand five hundred dollars”.
- 12 (Lump Sum) – The amount of the lump sum payment as a number. Ex: “$2,500.00”.
- 13 (Installments) – If “Installments” was selected, enter the amount of each installment payment in words. Ex: “One-hundred dollars”.
- 14 (Installments) – The amount of each installment payment as a number. Ex: “$100.00”.
- 15 (Installments) – Check the box regarding the frequency of payments. Ex: If “Weekly” is selected, the borrower would need to make a $100 payment each week to the lender.
Step 4 – Late Fee
- 16 – If the borrower will be required to pay a late fee if they do not make timely payment(s), enter the amount ($) of the late fee here. If no late fee, this field can be left blank.
Step 5 – Security
- 17 – Select whether the note will be secured or unsecured. If “Secure” is checked, enter the property that the borrower will be putting up as security
- 18 (Secure) – If “Secure” is checked, enter the property that the borrower will be putting up as security (such as a home or vehicle). If “Unsecure” is checked, this field should be skipped.
Step 6 – Co-Signer
- 19 – Select whether the note will have a co-signer or not. A co-signer is a person that pledges to back the loan. In other words, if the borrower stops making payments, it is the co-signer’s duty to make all missed payment(s) in full.
- 20 (Co-Signer) – If “Co-Signer” is selected, enter the full (first + last) name of the co-signer. If “No Co-Signer” is checked, this field should be left blank.
Step 7 – Governing Law
- 21 – Enter the name of the state that the lender is based out of. The laws pertaining to interest rates (and lending in general) will apply to the agreement.
Step 8 – Additional Terms
- 22 – The lender can use this field to write-in their own terms and conditions. This is optional. If there are no additional terms, this can be left blank.
Step 9 – Signing
- 23 & 24 – Both the lender and borrower will need to sign (see red field), write the date of their signing, and print their name. Signing can be through eSign or by writing it by hand.
- 25 – If a co-signer will be involved, they will need to sign, print their name, and write the date (mm/dd/yyyy) they signed the note.
- 26 & 27 – If witnesses will be viewing the signatures of the parties, they will need to sign, print their name(s), and write the date(s) they signed.
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