How to Write a Promissory Note

A promissory note is a signed, written instrument in which one party (the maker or borrower) unconditionally promises to pay a specific sum to another party (the payee or lender), either on demand or on a defined date, usually with interest.

Under Article 3 of the Uniform Commercial Code, a properly drafted note is a negotiable instrument — meaning the lender can assign or sell it to a third party, and the borrower\'s obligation travels with the paper.

Every enforceable promissory note contains at least these items:

• Date of execution — the day the note is signed.
• Names and addresses of the borrower and lender.
• Principal amount written in both words and figures.
• Interest rate — fixed or tied to a published index, stated annually.
• Payment schedule — lump sum, installments, or on-demand.
• Maturity date — when the final payment is due.
• Late fee / default clause.
• Governing state law.
• Borrower\'s signature (lender signature optional but recommended).

An unsecured note relies solely on the borrower\'s creditworthiness and promise. If the borrower defaults, the lender must sue and win a judgment, then chase assets through ordinary collections.

A secured note attaches collateral — a car title, house, equipment, or investment account. On default, the lender can repossess or foreclose without a full lawsuit. If you are lending more than a couple thousand dollars or to someone with weak credit, secure the note and record the security interest (UCC-1 filing for personal property, mortgage or deed of trust for real estate).

Every state caps the maximum legal interest rate on personal loans. Going above the cap can void the note entirely or forfeit the interest — sometimes the whole principal.

Typical caps for unlicensed lenders range from 6% to 18% annually. Commercial lenders and banks generally operate under preemption and can charge more. Always confirm the cap in the state whose law governs the note. If in doubt, 10% fixed is safe in almost every state.

If the borrower stops paying, the lender sends a written demand that cites the note, states the amount in default, and gives a cure period (typically 10–30 days). If the borrower does not cure, the lender can accelerate — declare the full balance due — and file suit.

A well-drafted note includes an attorneys\' fees clause so the borrower pays collection costs if judgment is entered. Without that clause, each side pays its own lawyer in most states.