Promissory Note Guide: Lending Money the Right Way

Promissory Note Guide

A promissory note is a written promise to pay a specific amount of money by a certain date.

When to Use One

• Personal loans to friends/family
• Business loans
• Real estate transactions
• Seller financing
• Student loans

Key Components

Principal Amount The total amount being borrowed.

Interest Rate - Simple interest - Calculated on principal only - Compound interest - Interest on interest - 0% interest - Personal loans may have none

Payment Terms - Lump sum at maturity - Installment payments - Payment schedule - Due date

Parties - Borrower (maker) - Who owes money - Lender (payee) - Who receives payment

Secured vs. Unsecured

Secured: Backed by collateral Unsecured: Based on borrower's promise

What Happens If They Don't Pay?

1. 1Send written demand
2. 2Negotiate payment plan
3. 3Small claims court
4. 4Collection agency
5. 5Report to credit bureaus

Create Your Promissory Note

Protect your loan with a proper promissory note.