What is a promissory note?
A promissory note is a short written document in which a borrower promises to pay a specific amount of money to a lender, either on demand, on a set date or in instalments. It is essentially a formal IOU. People use promissory notes for loans between family and friends, small business loans, loans from a company owner to their business, and as evidence of a debt when a buyer pays for something over time.
The note is signed mainly by the borrower, because it is the borrower's promise. This template also includes a signature line for the lender, which confirms that both sides agree to the terms and makes the record stronger.
What a promissory note should include
- The amount borrowed (the principal) and the currency.
- Interest – the yearly rate, or 0% for an interest-free note. Check that the rate is within local legal limits.
- Repayment terms – instalments with a first payment date, or a single payment on the maturity date.
- Where and how to pay – for example the lender's bank account.
- Late charge and default – what a missed payment costs and when the lender can demand the whole balance.
- Prepayment – whether the borrower can pay early without penalty.
Types of promissory notes
| Type | How it is repaid | Typical use |
|---|---|---|
| Instalment note | Regular payments until the maturity date | Personal loans, buying a car or equipment over time |
| Lump-sum (term) note | One payment of principal and interest on a set date | Short-term bridge loans |
| Demand note | Whenever the lender asks | Informal loans between relatives or to an owner's company |
| Secured note | Any of the above, backed by collateral | Larger loans where the lender wants an asset as protection |
If you need collateral, a guarantor or obligations on both sides, use the fuller loan agreement template instead.
How to use this template
- Enter the lender's and borrower's full legal names and addresses.
- Enter the amount, interest rate and how it will be repaid. To work out an instalment that pays off the loan by the maturity date, use the loan calculator.
- Add the first instalment date, the maturity date and where payments go.
- Set a late charge if you want one, and switch on "More than one borrower" if two people are borrowing together.
- Download the PDF. The borrower signs and dates it; the lender signs to acknowledge it and keeps the original.
Worked example
Robert lends his niece Anna $3,000 at 4% simple interest, repaid in 12 monthly instalments starting 1 February. The note states the principal, the rate, the instalment amount from the loan calculator, the first payment date and a maturity date of 1 January the following year. Each time Anna pays, Robert sends her a receipt. When the last payment arrives, he marks the note "Paid in Full" and gives it back.
Tips
- Keep the original safe. In many places the original signed note is the key evidence of the debt, and whoever holds it may be entitled to payment.
- Witnesses and notaries are usually not required, but some jurisdictions have formal rules, and a witness can help if the signature is ever disputed.
- Record every payment. A simple statement of account keeps both sides in agreement about the balance.
- Act early on missed payments. Start with a friendly payment reminder; use a demand letter only if that fails.
This template is general information, not legal advice. Rules on promissory notes, interest limits and debt collection differ by state and country; ask a lawyer for large or unusual loans.
Frequently asked questions
Does a promissory note need to be notarised?
In most situations no – a promissory note signed by the borrower is generally valid without a notary. Some jurisdictions or specific uses (for example notes tied to real estate) may have extra formalities, so check local rules if in doubt.
Who signs a promissory note?
The borrower must sign, because the note is the borrower's promise to pay. The lender's signature is optional in many places but is a good idea, as it shows both parties agreed to the terms.
What is the difference between a promissory note and a loan agreement?
A promissory note is a short, one-sided promise to repay. A loan agreement is a fuller contract signed by both parties that can include collateral, guarantors, conditions and obligations on the lender too.
Is a promissory note enforceable if the borrower stops paying?
Generally yes. A clear, signed note is strong evidence of the debt. After default, the lender can demand the full balance and, if needed, take legal action such as a small claims or civil claim to recover it.
Can I charge interest on a promissory note to a family member?
Yes, as long as the rate is within legal limits where you are. Interest-free notes are also common, but large interest-free loans can have tax consequences in some countries, so check with an accountant.
