To write a promissory note for a personal loan, you will need to include the names of both parties, the principal balance, the APR, and any fees that are part of the agreement. The promissory note should also clearly explain what will happen if the borrower pays late or does not pay the loan back at all. This note lays out all the terms of your personal loan and makes it a legally binding agreement. So it’s important to make sure you don’t forget any key aspects. If you do, you may have trouble enforcing the loan.
You might need to write a promissory note for a personal loan if you get a loan from an individual rather than from a traditional lender, or if you lend to someone else. Since individuals don’t have loan agreements prepared like companies do, they have to draw one up from scratch or using a basic template.
Now that you know the basics, let’s go through all the major elements that a promissory note for a personal loan will need to have, so that yours can cover all the bases.
Things to include in a promissory note for a personal loan:
- Names of both the borrower and the lender
- Date of the transaction
- Amount of the transaction
- Annual percentage rate
- When payments are due
- Fees and when they apply
- Penalty for late payments
- The state whose laws apply to the loan
- What happens if the borrower defaults
- Collateral (if applicable)
- Co-signer (if applicable)
- Signature of both the borrower and the lender
- Co-signer/witness signature (if applicable)
If you’re not a lawyer or familiar with legal terms, you may not want to draft your own promissory note. There are plenty of free samples online, for one thing. Or, if you have a friend or family member who is an attorney, you could ask them to draw up a note for you.
Even if you write the note yourself, it’s definitely a good idea to run it by a lawyer before signing. Having someone experienced with contracts on your side will help you make sure the loan goes smoothly and holds up legally.
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