Free Promissory Note Template

A promissory note is a written promise that one person will repay a loan to another. It outlines the loan amount, interest rate, repayment schedule, and late payment penalties. Both parties sign the note to make it official.

Unlike an IOU, a promissory note is a legally enforceable document that sets clear expectations. It helps avoid confusion and protects both the lender and borrower in case of a dispute.

A promissory note is useful anytime you lend or borrow money, especially when it’s personal, informal, or not involving a bank. Common situations include:

• Lending money to friends or family
• Funding a small business or equipment purchase
• Documenting real estate or vehicle financing
• Paying for tuition or medical expenses
• Splitting costs with structured repayment

Even if trust exists between the parties, having a clear written agreement helps avoid misunderstandings.

With Document Genius, you can choose between a secured or unsecured promissory note by deciding whether to include collateral.

• Secured promissory notes are backed by an asset, such as a car, equipment, real estate, or other valuable property. If the borrower doesn’t repay, the lender may claim the collateral through a legal process. This option lowers the lender’s risk and often results in a lower interest rate.
• Unsecured promissory notes don’t involve collateral. The borrower simply promises to repay the loan based on trust or their financial track record. This type is common for smaller personal loans or loans between people who know each other well and includes more risk to the lender. Interest rates are usually higher to account for the risk.

Our customizable template makes it easy to select the type of note that works for you. Just follow the step-by-step form and choose whether to add collateral or keep it simple.

Writing a promissory note is easy with the right structure. Follow these steps to make sure your agreement is clear and enforceable.

1. Add Lender and Borrower Information

Begin by listing the full names, addresses, and contact details for both the borrower and the lender. If either party is a business, include the business name and have an authorized person sign on its behalf.

For added protection, you can include a cosigner or guarantor—someone who agrees to take responsibility for the loan if the borrower can’t repay.

2. Define the Loan Terms

Clearly outline all the essential loan details:

• Loan amount: Total sum being lent
• Acknowledgment of debt: A simple statement that the borrower agrees to repay
• Repayment schedule: Choose lump sum, installments, or payment on demand
• Interest rate: Annual rate (fixed or variable), within state usury limits
• Due date: Final date the loan must be repaid
• Late fees: Optional penalties for missed payments
• Collateral: (Optional) Assets pledged to secure the loan
• Default terms: What happens if the borrower doesn’t repay

Be specific and use plain language. Avoid legal jargon that might confuse the borrower or complicate enforcement.

3. Add Optional Clauses

Depending on your situation, consider including:

• Prepayment terms: Allow early repayment, with or without penalty
• Amendments: How changes can be made after signing
• Governing law: Which state’s laws apply to the agreement
• Transfer rights: Whether the lender can sell or assign the note
• Dispute resolution: Mediation, arbitration, or court processes

These clauses add flexibility and help resolve future conflicts more easily.

4. Sign and Distribute

Once everything is finalized, all parties should sign and date the note. While notarization isn’t always required, it’s a good idea, especially for higher-value loans. If real estate is involved, you should always notarize the agreement.

After signing, give a copy to each person involved. Keep the original somewhere safe, and store a digital version in a secure place for easy access.

A promissory note could be unenforceable if:

• It leaves out key information like loan amount or repayment terms
• It was signed under pressure or without full understanding
• It includes illegal terms (such as excessive interest)
• It has been fraudulently altered or forged

To make sure your note is valid, stick to clear, lawful terms and confirm mutual agreement.

Once the borrower pays off the full amount, the lender should issue a promissory note release. This short form confirms that the debt is settled and ends the agreement. If collateral is involved, the release should also include a release of the collateral item.

It gives the borrower proof they’ve fulfilled their obligation and helps prevent future disputes.