Letters and Forms

When is a promissory note used?


A promissory note is used to keep a record of the transaction when money is loaned from one party to another party.? It is a written promise by a borrower to pay a specific amount of money to a lender.? It is a legal "IOU."? Often an interest rate will be set on the unpaid amount of the loan.




What information should a promissory note contain?

• Repayment type.? Examples are:
  
  • Monthly payments (equal amount)
  
  
  • Interest-only payments on a monthly basis with a final balloon payment
  
  
  • Monthly payments (equal amount) with a final balloon payment
  
  
  • Payment on demand
  
  


• Interest Rate - floating rate, adjustable rate or fixed rate


• Expected payment date


• Expected payment method


• The lender's right to demand full payment of the loan if any partial payments are past due


• Attorney's fees clause


• Printed name and signature of borrower

What other information can be included in a promissory note?

• Penalties and surcharges for late payment


• The lender's right to order payment to be made to a third party

Should I sign a promissory note when I borrow money from someone I know?


It is certainly a smart thing to do even if you do not feel comfortable or do not think it is necessary to do so.? It is a good idea to keep a record of the details regarding repayment of any loan.




Who must sign the promissory note?


The promissory note must be signed by the borrower.? Generally the lender is not required to sign it but may do so.