A Promissory Note is a document that is signed by an individual that details the amount of money borrowed from another individual or organization (Lender). A promissory note is also referred to as a “Promise to Pay” note or a “Note payable”. The promissory note is a legal document and includes all the details of the amount that is owed by the Borrower to the Lender, as well as the Repayment structure. In simple terms, with a Promissory Note, a Borrower “promises to pay” a Lender, in writing, a predetermined sum of money, according to a predetermined set of rules and terms.
As a legal document, the promissory note holds the Borrower fully accountable for repayment. A promissory note template is similar to a Loan Agreement template, with the latter being much more sophisticated and complex. Typically, a Loan Agreement form, which must be signed by both the Borrower and the Lender, has obligations for both the borrower and lender while the promissory note has obligations on the Borrower alone. For these reasons, a promissory note is almost always used for low-value transactions, while high-value transactions are dealt with the use of a legal loan agreement form.
Now that we know what is a promissory note, let’s take a look at the types of promissory notes.
There are two types of Promissory Notes — Unsecured Promissory Note and Secured Promissory Note. As the name suggests, a Secured Promissory Note is an agreement that has a collateral or guarantee attached to it, usually in the form of an asset or property. This means that in the event that the Borrower is unable to repay the borrowed money, the Lender can claim rightful ownership of the asset or property. On the other hand, an Unsecured Promissory Note has no security attached to it, meaning there’s no collateral or guarantee and if the borrowed money cannot be repaid for any reason, the Lender has no respite.
Secured Promissory Note Template
A secured promissory note is a simple promissory note format that is very easy to understand. It is similar to an unsecured promissory note, except without the collateral clause attached to it.
Here, we’ll be taking a look at a secured promissory note example template and understand its contents, so that you can download the free promissory note sample PDF and edit it according to your needs and requirements.
What are the Contents of a Promissory Note?
As the Promissory Note is a legal & contractual agreement between two parties, it must contain detailed information about the two parties, along with the specifics of the amount to be repaid.
Any unsecured or secured promissory note must contain the following details:
- Complete details of both the borrower and the lender, i.e. their full names and complete addresses.
- The total amount of the loan, both in numbers and words.
- The interest rate for the loan amount, if applicable.
- The date when the loan agreement goes into effect.
- The date when the loan amount has to be repaid.
- The repayment schedule, if the loan amount is to be paid in installments.
- The jurisdiction under which the agreement is valid.
- The Collateral or Security, in case of a Secured Promissory Note
Click here to download the Free Promissory Note PDF Template shown above.
The Promissory Template shown below is a secured promissory note template PDF that you can download and edit according to your needs. You can customize the PDF and add your own details to it using PDF Expert — the best PDF Editor app for iOS and Mac. Download PDF Expert for Free to get started with this Free PDF promissory note template.