Promissory Note Template

A promissory note is a written agreement between a borrower and a lender that records a promise to repay money. It is used to document the loan amount, interest rate, maturity date, late fees, default rules, and other repayment terms.

A promissory note is a legally binding document in which one party, the borrower, promises to repay a specific debt to another party, the lender. It works as a formal promise to pay agreement and helps both sides record the essential loan terms in writing.

A promissory note template is often used for personal loans, business loans, real estate financing, family loans, or other situations where one person or company lends money to another. A standard promissory note usually includes the principal amount, interest rate, maturity date, payment method, default rules, and signatures.

This document is more detailed than a simple IOU but usually shorter than a full loan agreement. It can be used for secured debt, where collateral supports repayment, or unsecured debt, where the lender relies on the borrower’s promise and financial reliability.

Use a promissory note form when the parties need a clear written record of a loan and repayment terms. Common situations include:

A promissory note usually includes the following parties:

Promissory notes can be structured in different ways depending on the loan, repayment plan, and level of risk.

Interest may be calculated as simple or compound interest, depending on the terms of the promissory note.
For simple interest, the basic formula is:

Principal amount × annual interest rate × time = interest owed

For example, if the borrower receives $10,000 at 6% annual simple interest for one year, the interest would be $600. The borrower would owe $10,600 in total, assuming no late fees, compounding, or additional costs apply.

Compound interest works differently because interest may accrue on both the principal and previously accrued interest. If the note allows compound interest, the total repayment amount can be higher than under a simple interest calculation.

Before adding an interest rate, check the law that governs the note. State usury rules, lender exemptions, and federal rules for certain lenders can affect whether an interest rate is allowed.

Interest rates are not unlimited, but the rules vary by state, loan type, lender type, and whether an exemption applies. A promissory note should not treat one state’s general rule as a universal cap.

For example, California addresses usury in Article 15, Section 1 of its Constitution. The rule includes different limits for consumer and non-consumer loans and does not apply the same way to all lenders, since many regulated lenders may be exempt.

New York uses a connected statutory framework. General Obligations Law § 5-501 sets a default interest rule and points to Banking Law § 14-a, which prescribes the maximum civil usury rate at 16% per year.

If the note involves a mortgage loan, the Consumer Financial Protection Bureau explains that a promissory note can include the loan amount, interest rate, payment dates, total repayment amount, repayment period, and payment location in its mortgage closing guidance: CFPB mortgage loan documents.

A well-drafted promissory note should clearly explain who owes money, how much is owed, when repayment is due, and what happens if the borrower does not pay. Loio’s promissory note form includes the following sections:

Follow these steps to complete a promissory note template:

Promissory notes are governed mainly by state contract law, and some terms may be limited by state-specific rules. Before signing, review the following points.

Interest rates are not unlimited. Many states restrict the maximum lawful interest rate that may be charged on a loan. For example, California addresses usury limits in California Constitution Article 15, Section 1, Texas regulates interest rates under Texas Finance Code Chapter 302, and New York addresses usury in General Obligations Law § 5-501 and Banking Law § 14-a.

If the note involves a mortgage loan, the Consumer Financial Protection Bureau explains that a promissory note can include the loan amount, interest rate, payment dates, total repayment amount, repayment period, and payment location in its mortgage closing guidance: CFPB mortgage loan documents.

A secured promissory note gives the lender rights in collateral if the borrower defaults. Collateral may include real estate, equipment, a vehicle, or another valuable asset.

An unsecured promissory note does not include collateral. This may be simpler for the borrower, but it creates more risk for the lender. If the borrower fails to pay, the lender may need to pursue collection, court action, or another legal remedy.

Before lending money, a creditor may want to review the debtor’s repayment history. Credit bureaus such as Equifax and TransUnion may help lenders assess whether a borrower has a history of late payments, defaults, or high debt levels.

This information can affect the interest rate, guarantor requirement, collateral request, or decision to lend at all.

Default rules should be clear before the note is signed. The borrower should understand when payment becomes late, when the full balance may become due, and whether late fees, attorney’s fees, court costs, or collection agency fees may be added.

If the amount is small, disputes may sometimes be handled in small claims court, depending on the state, amount in dispute, and type of claim.

A promissory note can be legally binding without notarization if it meets the basic requirements of a valid contract. However, notarization may help confirm the identity of the signers and reduce disputes over whether the document was signed voluntarily.

For real estate-related notes, high-value loans, or notes involving a guarantor, notarization can add an extra layer of formality.