How To Easily Write A Promissory Note To A Family Or Friends For A Personal Loan

The majority of us have previously written an informal IOU when lending money to someone.
However, if you’re giving a big sum of money, such as a personal loan to family or friends, Prepare a proper promissory note as if you were a bank lender. Writing a written promissory note serves both the lender and the borrower. It provides customers with a formal agreement outlining the loan’s terms, payback requirements, and any collateral necessary.

What you need to know about writing a promissory note for a personal loan is as follows.

What Is the Definition of a Promissory Note?

Almost definitely, if you’ve ever borrowed money from a bank, you signed a loan agreement.

In a payment made, all borrowing conditions are legally binding. It is a contract that details the loan amount, payback terms, loan expenses, and the lender’s recourse if the borrower defaults on the loan. As a borrower, when you sign a promissory note, you agree to the loan’s conditions and guarantee that you will repay it.

Promissory notes are most often used when we get a personal loan, a student loan, or another kind of credit from a bank or lender. However, we sometimes lend money to friends and relatives. Often, we just lend them money informally or even verbally.

However, this approach is prone to backfire. What if, for instance, your nephew flees town with your $5,000? Or Is it possible that your aunt is delaying the repayment of your loan because she knows you need the money urgently? Having a written promissory note in place might assist in resolving such issues.

When Is a Promissory Note Appropriate?

To donate money and expect it back, use a promissory note. However, if you make loans from someone who would be upset if you don’t return it, you should create a promissory note instead.

If you’re going out for dinner or filling up your car, you’re not likely to sign a promise for a little amount of money. You’ll want a promissory note in place if you’re loan someone more than a few hundred dollars to guarantee that everyone is on the same page.

What is a Promissory Note?

While a promissory note is a legal document, it does not have to be complicated to write. There are also websites, such as eForms or LegalZoom, that provide fill-in-the-blank forms.

A promissory note, at its most basic level, should contain the following:


The lender’s and borrower’s names

Amount of loan

It makes no difference whether the loan is secured or unsecured.

If it is collateralized:

What is security?

When may the lender seize the collateral (e.g., after three months of late payments? One calendar year?)

Rate of interest

Amount and frequency of payments

The due date for payment

Whether a cosigner is required for the loan, and if so, who

If you’re charging interest on the loan, an online personal loan calculator makes it simple to determine the monthly amount. All you need to input is the loan amount, the term length (how long it will take the borrower to repay the loan), and the interest rate.

GAD Capital advises that all the borrowers should always, Bear in mind that each state regulates the maximum interest rate that may be charged on a loan. These are referred to as usury rules, and you must examine them to ensure that your loan interest rate is lawful if you want to charge interest.

How to Sign and Store a Promissory Note

Often, it’s prudent to have a lawyer review your loan to ensure that everything is in order and that you are not unwittingly breaching any laws. However, a lawyer is not required to ensure the loan’s validity.

Once the promissory note has been drafted, it is time for it to be signed by everyone involved: the lender, the borrower, and the co-signer (if there is one). Again, professional assistance, such as notarizing the signatures, is recommended but not essential. If you ever need to sue someone, this will ensure the other party cannot claim you faked their signature.

Ascertain that each individual who signed the promissory note receives a copy for their records. It’s a good idea to create a second duplicate and store it safely, such as in a secured file cabinet or on the hard disk of your computer.

How to Modify a Promissory Note

It is OK to make modifications to your promissory note, but you must first get approval from all parties.

To change a contract, it is often simplest to just create a second document as an addendum to the original. Make a note of any changes, whether they pertain to the interest rate, the payment amount, or anything else. Then have everyone sign those copies once again and distribute copies of the amendment. This way, it will still stand up in court if necessary.