Word 2010 promissory note template

That could be a significant amount of money gone in the wind. As a borrower, no concrete promissory note means you could be paying more than you owe, or you could even find yourself sued for a supposed default that never happened. A promissory note must be signed by the borrower, it must outline the sum of the debt, and it can specify more detailed loan terms if both parties agree.

An IOU, which the borrower signs, simply acknowledges the sum total of the debt. On the other end of the spectrum, an official loan agreement is a separate contract that is more complex and regulated. Unlike an IOU or a promissory note, a loan agreement must have the signatures of the borrow and the lender, and it must include a detailed plan for payments, interest rates, and consequences, should the borrower default. There are two kinds of promissory notes: secured and unsecured. Secured promissory notes require collateral assets put up by the borrower to protect the lender in the event of a default.

The secured promissory note template at the end of this article has a place to describe the collateral and the terms under which the lender would take ownership of it. And, of course, the debt could go to collections and eventually a civil lawsuit if the lender chooses. Not every loan needs a promissory note, and not every promissory note fits all styles of loan.

You do need a promissory note for private investments and certain kinds of real-estate deals and for personal loans between individuals. Personal loans might include vehicle sales between private parties, cash loans to family members and friends, or the sale of expensive equipment. Investments that employ promissory notes generally involve cash injections to small businesses to help them with equipment, payroll, real estate, or other expenses.

Real-estate loans that use a promissory note usually take the place of a mortgage in special circumstances. Homebuyers who have trouble qualifying for a traditional mortgage can use a promissory note to enter an agreement with the current owner of the house.

The owner of the house sets the terms of the loan, and the house being purchased becomes the collateral that secures the loan for the buyer. Definition of the parties: This clause must identify who the borrower is and who the lender is. For digital contracts, this section should include a spot for an electronic signature. These are all of the required clauses.

What separates a promissory note from an IOU is that a promissory note can be more complex by including the clauses below. If the debt ever moves to a legal arena, clear and precise language can save you from an unfair judgment. Default clause: This clause should detail what happens if the loan is never paid back—specifically, what penalties the lender can levy against the borrower.

For a vehicle, the penalty would likely be repossession, while a piece of real estate would likely lead to foreclosure. Repayment schedule: On what date is the sum of the debt to be paid in full? This clause should ideally let both parties know what happens after a late payment. Are there fees for late payment, are there a certain number of late payments that can be forgiven, etc.

Interest rate: This clause would be necessary for any promissory note that describes a debt to be paid with interest. Ask yourself the following questions when both parties are working out the loan and the note : What is the percentage of interest? When is the interest compounded? A borrower needs to pay special attention to this clause.

Security and collateral: In a secured promissory note, this section defines the asset or assets being used to secure the loan and the circumstances of its seizure. Co-signer area: For borrowers who may not have sufficient credit or collateral, a promissory note may have the option of a co-signer. The section would detail how the co-signer would share the responsibility of any fees or penalties accrued due to default or late payment.

Again, if this is a contract being sent via email or any other digital method, this section would need a secure electronic signature. Like any legal document or contract, promissory notes come with their own landmines—we can help you find them before you draft or sign your promissory note. There are a few loopholes, errors, and misunderstandings that void a promissory note, and you should know what they are so you can avoid them.

Unapproved alterations: All changes to any terms of the note must be agreed upon by the debtor and the borrower, before or after signing. Proof of an unapproved change will void the note. The loss or destruction of the original note: Suing a debtor is nearly impossible without a copy of the original note. Promissory notes, and the laws relating to those notes, differ from country to country.

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