How to Write a Promissory Note

If you borrow or lend money, a promissory note sets the terms and details of your loan. Though it might seem like another boring document to be skimmed quickly, it’s a key component of loans with very important – and legally binding – details.

If you’re preparing to sign on the dotted line on a promissory note, understanding how a promissory note works and what it should include is crucial.

What Is a Promissory Note?

A promissory note is a written agreement to pay someone – essentially an IOU. But it’s not something to be taken lightly. “It is a legally binding written document effectuating a promise to repay money,” says Andrea Wheeler, a business attorney and owner of Wheeler Legal PLLC of Florida.

Promissory notes are often used in the financial services industry. Zachary D. Schorr, a Los Angeles-based attorney, says, “They are typically used for formal loans like mortgages or commercial loans where the borrower makes a promise to repay a loan in writing.” If you take out a car loan or student loan, for instance, you would sign a promissory note agreeing to the terms, conditions and payback schedule for it.

A promissory note can also be used in less formal situations, such as when you lend money to a friend, family member or business partner, in order to make the loan official. You probably don’t have to worry about lending a few bucks, but making a significant personal loan to another person or even a business likely warrants an official promissory note.

What a Promissory Note Includes

In order for a promissory note to be valid and legally binding, it needs to include specific information.

“A promissory note should include details including the amount loaned, the repayment schedule and whether it is secured or unsecured,” says

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