How To Write A Promissory Note For A Personal Loan To Family Or Friends With Ease in 2022
We’ve all written an informal IOU before we loan money to someone else.
However, if you’re lending large amounts of money, for example, the kind of personal loan to family or acquaintances, it’s a great idea to create an official promissory note like you would the lender at a bank. The formality of a promissory note is beneficial to the borrower as well. It provides them with the borrower a written contract that defines the cost of borrowing as well as repayment obligations, and any collateral required.
This is what you must learn to write a promissory note to secure the purpose of a personal loan.
What Is a Promissory Note?
If you’ve ever taken out a loan from a lender, the chances are that you’ve made a promissory note.
A promissory note is a legally binding document that lays out all specifics that apply to the loan. It’s a contract that outlines details of the loan amount, repayment obligations the loan’s costs, along with what the lending institution will do if the borrower isn’t able to pay back the loan. If you agree to sign the promissory notice as the borrower, you are agreeing to the terms of the loan, and guarantee that you will be able to repay the loan.
We are most familiar with promissory notes whenever we get a personal loan, a student loan, or another type of credit from an institution or a lender. Sometimes, we loan money to our family and friends as well. In most cases, we lend the money using an unofficial or even a verbal IOU.
However, this could result in a negative outcome. What happens if your nephew leaves town with your $5 for instance? What does it mean if your aunt has taken her sweet time to pay you back when you could benefit from the cash today? The formality of a promissory note can solve issues such as this.
When Should You Use a Promissory Note?
You should sign a promissory note each time you lend money to someone that you’d like returned. However, it’s also a great idea to make a note of a promissory contract whenever it’s necessary to borrow money from someone who might be angry when you fail to return the loan.
The majority of people don’t bother signing promissory notes for a smaller amounts, like when they spot people at dinner or refilling a tank of gas. If you’re looking to loan someone several hundred or thousands of dollars, for instance, it is important to ensure you have a formal note of promissory prepared to ensure that you’re all on the exact same note.
How to Write a Promissory Note
Even though it’s legal, making a promissory note does not need to be difficult. There are websites with fill-in-the-blank templates that include templates for filling in the blanks.
The most basic form of a promissory note must include the following elements:
- Nom of the lender as well as the borrower’s name.
- The loan amount
- If the loan is secured or unsecure
- If it’s secured by collateral :
- What is collateral?
- When does the lender have the right to get control of collateral (for instance, after three months of non-payment? A year?)
Rate of interest
- If it’s secured by collateral :
- The amount of payment and the frequency
- Payment due date
- If the loan is co-signed by cosigners If so the person who cosigns
If you’re charging a fee for interest on the loan, you’ll be able to determine the amount of your payment with an online personal loan calculator. All you have to enter are your loan amount, the term length (i.e. the length of time the borrower must repay it) along with the loan’s interest rate.
Remember that each state has its own rules regarding the maximum rate of interest you are able to charge on the loan. These are referred to as usury laws. You’ll have to verify for them to ensure that the interest rate you charge on your loan is legal when you’re charging interest.
Signing and Storing a Promissory Note
It’s usually recommended to get a lawyer to look over your loan to ensure all is in good order and that you’re not knowingly violating any laws. But, having lawyers is not required in order for your loan to become legal.
When you’ve completed the draft of the promissory note, it’s now time for all parties to sign it The loanee, the lender along with the other cosigner (if there’s one). Also, getting help from a professional for notarizing signatures is recommended however it’s not necessary. If you do decide to go to court to pursue a lawsuit against someone, make sure that the opposing party doesn’t say that you have forged their signature.
Be sure that every person who has signed the promissory note receives a copy to keep for their record. It’s recommended to create an additional copy and store it in a secure location also, like in the locked filing cabinet, or on the hard drive of your PC.
How to Make Changes to a Promissory Note
It’s fine to alter your promissory note. However, in order to do this, you’ll need the permission of everyone first.
If you want to alter the terms of the contract, it’s simpler to write another document that is it’s an addition to the initial document. Note the changes you want to make that you want to make, be it an interest rate or amount of the payment, or anything else. Make sure that everyone signs the original copy, and distributes an original copy of the amendment. This way, it will stand up in court in the event that the need arises.