Promissory Note Template

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A Promissory Note is a legal document between a borrower and a lender promising repayment of a specific loan amount under agreed terms. It is used to provide written evidence of debt and repayment obligations.
PROMISSORY NOTE

State of  

Date:  

Principal amount:  

FOR VALUE RECEIVED,  , an individual having their usual place of living at   (the "Borrower") promises to pay

 , an individual having their usual place of living at   (the "Lender") the principal sum of   (the "Principal Amount"), together with interest accrued thereon, if any, under the terms and conditions set forth herein.

The loan shall accrue interest at the rate of  % per year (the "Interest Rate" or the "Accrued Interest"). However, the total interest accrued on the Principal Amount shall not exceed the maximum limit allowed by law, and the Borrower shall not be obligated to pay interest beyond that amount.

The Borrower executes this Promissory Note in favor of the Lender to document and formalize the loan arrangement between the Parties.

TERMS OF REPAYMENT

The Principal Amount, along with the Accrued Interest, if any, shall be due and payable on   (the "Maturity Date").

The Principal Amount, along with the Accrued Interest, if any, shall be paid in full on the Maturity Date by cash.

Any payments made by the Borrower shall be applied first to outstanding late fees, then to the Accrued Interest, and finally to the Principal Amount.

Late fee: If the Lender does not receive any payment within   days from the Maturity Date, the Borrower shall be liable for a late fee of  % of the overdue payment amount. 

GUARANTY

 , an individual registered at   (the "Guarantor"), promises to unconditionally guarantee to the Lender the full payment and performance of all responsibilities and obligations by the Borrower outlined in this Promissory Note. The Guarantor acknowledges that this guaranty shall remain in full force and effect and be binding on the Guarantor until this Promissory Note is satisfied.

In the event of the Borrower's default, the Lender is entitled to demand fulfillment of obligations from both the Borrower and the Guarantor.

Any notice or communication required or permitted under this Promissory Note to the Guarantor shall be sufficiently given if delivered personally or by certified mail to the address set forth above or to the following email:  . 

COLLECTION COSTS

In the event of any default or breach of any terms and conditions of this Promissory Note, the Borrower agrees to be responsible for all costs incurred by the Lender in collecting the outstanding Principal Amount, including but not limited to reasonable collection agency fees, attorneys' fees, court costs, and any other expenses associated with the enforcement or collection of this Promissory Note. The Borrower acknowledges that these collection costs supplement any other remedies available to the Lender under applicable law.

DEFAULT

Any of the following events shall constitute a default under this Promissory Note:

  • The Borrower fails to make any payment due under this Promissory Note.
  • The Borrower becomes insolvent, files for bankruptcy, makes an assignment for the benefit of creditors or becomes subject to any similar insolvency proceedings.
  • The Borrower provides false or misleading information, statements, or representations to the Lender concerning this Promissory Note.

In the event of default, the Lender shall have the following remedies, among others:

  • The Lender may declare the entire outstanding Principal Amount, along with any Accrued Interest, as immediately due and payable.
  • The Lender may initiate collection efforts, including engaging collection agencies or pursuing legal action to recover the outstanding Principal Amount owed under this Promissory Note.

The exercise of any of the remedies available to the Lender under this Promissory Note shall not be deemed a waiver of any other rights or remedies, and the Lender shall be entitled to pursue all available legal remedies under applicable law.

NOTICE

Any notice or communication required or permitted under this Promissory Note shall be sufficiently given if delivered personally or by certified mail, return receipt requested, to the address specified in the opening paragraph or to such other address as one Party may have furnished to the other Party in writing, or to emails set forth below:

If to the Borrower:  . 

If to the Lender:  .

FORCE MAJEURE

Neither Party shall be liable for any failure to perform or delay in performing the obligations under this Promissory Note if such failure or delay is caused by events of force majeure, including but not limited to acts of God, war, terrorism, strikes, lockouts, labor disputes, pandemics, epidemics, governmental regulations, or any other similar causes beyond the reasonable control of the affected Party.

In the case of force majeure, the affected Party shall immediately notify the other Party in writing and provide reasonable proof of the cause of the delay or inability to perform the obligations. The Party affected by force majeure shall endeavor to mitigate the consequences of such circumstances and resume the performance of obligations as soon as possible after the circumstances cease to exist.

GOVERNING LAW AND DISPUTE RESOLUTION

This Promissory Note shall be governed by and interpreted under the laws of the State of  , and any disputes related to this Promissory Note shall be exclusively resolved by the courts of the State of  .

CONFIDENTIALITY

The Parties agree to keep all disclosed information confidential and not to share such information with any third party unless required by law. The Parties agree not to use the confidential information for any purpose other than what is necessary to fulfill their obligations under this Promissory Note.

This confidentiality clause shall remain in effect after the termination or expiration of this Promissory Note.

SEVERABILITY

The invalidity or unenforceability of any provision of this Promissory Note shall not affect the validity or enforceability of any other provision of this Promissory Note.

ENTIRE AGREEMENT

This Promissory Note represents the entire agreement between the Parties and supersedes any prior oral or written agreements.

WAIVER

The failure of any Party to enforce a particular provision of this Promissory Note shall not constitute a waiver of their right to enforce that provision in the future.

AMENDMENTS

This Promissory Note may be amended or modified only by a written agreement signed by both Parties. Any amendments to this Promissory Note shall be binding only if they are in writing and signed by both Parties.

BINDING EFFECT

This Promissory Note shall be binding upon the Parties and their respective successors and assigns.

IN WITNESS WHEREOF, the Parties have executed this Promissory Note as of the date first stated above.

THE BORROWERTHE LENDER

 

 

 ,  ,  

 

 

___________________________

(Place for signature)

 

 

 

 ,  ,  

 

 

___________________________

(Place for signature)

 

THE GUARANTOR

 

 

___________________________

(Place for signature)

Written by Karyna Pukaniuk - Reviewed by Kate Adkham

Promissory Note Sample

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You can view and edit a sample version of this document directly in Loio’s editor using our Promissory Note Template. This editable sample outlines the key clauses, repayment terms, and structure of a professional note.

What Is a Promissory Note?

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A promissory note is a legally binding document in which one party — the borrower — promises in writing to repay a specific amount of money to another party — the lender — under agreed terms.

Think of it as a formal “IOU” that outlines how and when a loan will be repaid, including the loan amount, interest rate, repayment schedule, and what happens if payments are missed.

Promissory notes are commonly used for personal loans between family or friends, business loans, mortgages, or student loans. They create clarity and help prevent misunderstandings by documenting every key term in writing.

Types of Promissory Notes

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Secured Promissory Note
A secured promissory note includes collateral — an asset pledged by the borrower (such as a car, property, or equipment). If the borrower fails to repay the loan, the lender can claim the collateral to recover the debt.

Example:

Alex borrows $10,000 from Jordan to buy a car. The car serves as collateral, so if Alex doesn’t repay, Jordan can repossess the vehicle.

Unsecured Promissory Note
An unsecured promissory note is based on trust alone — no collateral is provided. Because of the higher risk to the lender, the interest rate may be higher or the repayment terms stricter.

Example:

A parent lends $2,000 to their child for college books. The loan is based on good faith, without any assets securing it.

Master Promissory Note (MPN)
This note is mainly used for federal student loans. It allows multiple loans from the same lender under one agreement, avoiding the need to sign a new note each time.

Demand Promissory Note
With this note, the lender can request full repayment at any time. It’s flexible but riskier for the borrower since there’s no fixed end date.

Convertible Promissory Note
Often used in startup financing, this note gives the lender the option to convert the loan into company equity instead of being repaid in cash.

Installment Promissory Note
Here, the borrower repays the loan in smaller, regular installments, often ending with a larger final “balloon” payment.

Joint and Several Promissory Note
Used when multiple borrowers share the loan. Each borrower is both individually and jointly responsible for repayment.

When to Use a Promissory Note

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  • Personal Loans: When lending or borrowing between family or friends, to ensure fairness and avoid disputes.
  • Mortgages or Real Estate: Used as the main loan agreement promising repayment for property purchases.
  • Seller or Owner Financing: When a property seller acts as the lender and sets repayment terms for the buyer.
  • Business Startup Loans: When an investor or partner provides funding to a new business.
  • Student Loans: A binding agreement between the borrower (student) and lender (school or government).
  • Unsecured Business Loans: Short-term loans without collateral, often between companies or investors.

The Parties in a Promissory Note

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Maker (Borrower or Payer)

The person or business borrowing the money and agreeing to repay it.

Payee (Lender)

The individual or organization lending the funds and expecting repayment under the agreed terms.

Clauses You Can Include in a Promissory Note

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A well-written promissory note template should include the following sections:

  • Principal Sum: The total loan amount being borrowed.
  • Interest Rate: The agreed percentage charged on the principal.
  • Payment Schedule: How and when payments will be made — monthly, quarterly, or in installments.
  • Maturity Date: The final repayment date for the full amount.
  • Default Clause: Defines what counts as a default (missed payment, noncompliance) and its consequences.
  • Acceleration Clause: States that if a default occurs, the lender can demand full repayment immediately.
  • Late Fees/Penalties: Lists any fees or higher interest charged for overdue payments.
  • Governing Law: Identifies which state’s laws apply to the note.
  • Signatures and Dates: Both the borrower and lender must sign and date the agreement.

How to Write a Promissory Note

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Step 1. Identify the Parties

List the borrower (maker) and lender (payee) with their full names and contact details.

Step 2. Specify the Loan Amount and Terms

Write the exact amount of money being borrowed and the purpose of the loan, if applicable.

Step 3. Set the Interest Rate

Include the agreed interest rate — fixed or variable — according to state laws.

Step 4. Outline the Repayment Schedule

Describe how payments will be made:

  • Lump sum or installments;
  • Payment frequency (monthly, quarterly);
  • Start and end dates.

Step 5. Add Default and Penalty Clauses

Explain what happens if the borrower misses payments or defaults — including any late fees or acceleration clauses.

Step 6. Include the Governing Law

State which jurisdiction’s laws will govern the loan terms and enforcement.

Step 7. Sign and Date

Notarization isn’t always required but adds an extra layer of protection.

How to Calculate the Interest Rate in a Promissory Note

Interest rates are typically expressed as an annual percentage of the loan amount.
Here are three common methods to calculate it:

1. Simple Interest:

Interest = Principal × Rate × Time

Example: A $10,000 loan at 5% for one year = $500 in interest.

2. Compound Interest:
Interest is added periodically (monthly or yearly), and future interest is calculated on the new balance.

3. Flat Rate Interest:
The total interest is fixed for the loan duration and doesn’t change over time.

Each U.S. state limits the maximum interest rate (usury rate). Always check your state’s rules before finalizing the note.

Frequently Asked Questions

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Who keeps the original promissory note?

The lender usually holds the original note until the debt is fully repaid. Once paid off, it’s marked “Paid in Full” and returned to the borrower.

Are promissory notes legally binding?

Yes — as long as the document includes the loan amount, repayment terms, and signatures of both parties, it’s enforceable in court.

Is a handwritten promissory note legal?

Yes, handwritten notes are valid if signed by both parties — but digital or typed notes are preferred for accuracy and readability.

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