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Promissory Note Template

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A promissory note is a contract completed when one person loans money to another. It serves as a “written promise” from the borrower to the lender in that they will repay the loaned amount plus interest.

Although less complicated than a standard loan agreement, the note includes options for adding a co-signer, establishing security, and mandating late fees.

By State

Types (2)

Secured Promissory Note – Requires the borrower to provide an asset (of similar value as to the balance of the note) to “back up” the amount loaned. If the borrower defaults, the lender can acquire and sell the asset to make up for the unpaid balance.

Download: PDF, Word (.docx), OpenDocument

 

Unsecured Promissory Note – Does not require the borrower to provide an asset to serve as collateral.

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.