Writing a Simple Promissory Note That Works

When it comes to lending or borrowing money, creating a clear and legally binding promissory note is essential. In this guide, I’ll share my insights on how to draft an effective promissory note, along with three unique templates to get you started.

Key Takeaways

  • What is a promissory note? A written promise to repay a debt.
  • Why use a promissory note? Ensures clarity and legal protection.
  • Essential elements: Parties involved, loan amount, interest rate, repayment terms, and signatures.
  • Three templates provided: Simple, secured, and balloon payment.
  • Personal tips: Be clear, concise, and include all necessary details to avoid future disputes.

Understanding Promissory Notes





A promissory note is a financial document that outlines the terms of a loan agreement between two parties: the lender (or payee) and the borrower (or maker). This document serves as a written promise that the borrower will repay the specified amount to the lender within a set timeframe, along with any agreed-upon interest.

From my experience, having a well-crafted promissory note can prevent misunderstandings and provide legal recourse if the borrower fails to repay the loan.

Essential Elements of a Promissory Note

  1. Date: The date when the promissory note is created.
  2. Parties Involved: Names and addresses of both the lender and the borrower.
  3. Loan Amount: The total amount of money being lent.
  4. Interest Rate: The interest rate applicable to the loan.
  5. Repayment Terms: Detailed schedule of how and when the loan will be repaid.
  6. Signatures: Signatures of both parties to make the document legally binding.

Template 1: Simple Promissory Note

This is the most basic form of a promissory note, suitable for informal loans between friends or family members.


Simple Promissory Note

Date: [Date]

Borrower: [Borrower’s Full Name]
Address: [Borrower’s Address]

Lender: [Lender’s Full Name]
Address: [Lender’s Address]

Loan Amount: [Loan Amount]

Interest Rate: [Interest Rate]

Repayment Terms: [Detailed Repayment Terms]

I, [Borrower’s Full Name], promise to pay [Lender’s Full Name] the amount of [Loan Amount] with an interest rate of [Interest Rate] per annum, in accordance with the repayment schedule outlined above.

Borrower’s Signature: ___________________________
Lender’s Signature: ___________________________


Template 2: Secured Promissory Note

This type of note includes collateral, providing the lender with security in case the borrower defaults on the loan.


Secured Promissory Note

Date: [Date]

Borrower: [Borrower’s Full Name]
Address: [Borrower’s Address]

Lender: [Lender’s Full Name]
Address: [Lender’s Address]

Loan Amount: [Loan Amount]

Interest Rate: [Interest Rate]

Repayment Terms: [Detailed Repayment Terms]

Collateral: [Description of Collateral]

I, [Borrower’s Full Name], promise to pay [Lender’s Full Name] the amount of [Loan Amount] with an interest rate of [Interest Rate] per annum, in accordance with the repayment schedule outlined above. This loan is secured by [Description of Collateral].

Borrower’s Signature: ___________________________
Lender’s Signature: ___________________________


Template 3: Balloon Payment Promissory Note

This note includes smaller periodic payments with a large lump-sum payment at the end of the term.


Balloon Payment Promissory Note

Date: [Date]

Borrower: [Borrower’s Full Name]
Address: [Borrower’s Address]

Lender: [Lender’s Full Name]
Address: [Lender’s Address]

Loan Amount: [Loan Amount]

Interest Rate: [Interest Rate]

Repayment Terms: [Detailed Repayment Terms Including Balloon Payment]

I, [Borrower’s Full Name], promise to pay [Lender’s Full Name] the amount of [Loan Amount] with an interest rate of [Interest Rate] per annum. Payments will be made as follows: [Detail smaller periodic payments], with a final balloon payment of [Balloon Payment Amount] due on [Due Date].

Borrower’s Signature: ___________________________
Lender’s Signature: ___________________________


Tips from Personal Experience

  1. Be Clear and Concise: Avoid ambiguity in your promissory note. Clearly state all terms and conditions to prevent future disputes.
  2. Include All Necessary Details: Ensure that all essential elements are included, such as the repayment schedule and any penalties for late payments.
  3. Legal Advice: Depending on the complexity of the loan, consider consulting with a legal professional to ensure your promissory note complies with local laws.
  4. Keep Copies: Both parties should keep signed copies of the promissory note for their records.
  5. Review and Revise: Periodically review the promissory note to ensure it still meets the needs of both parties, especially if there are changes in the repayment terms.

Real-Life Example

Several years ago, I lent a significant amount of money to a close friend who was starting a business. To avoid any potential strain on our friendship, we drafted a detailed promissory note outlining the loan amount, interest rate, and repayment schedule. This clarity helped maintain our relationship and ensured timely repayments, highlighting the importance of having a well-written promissory note.

Summary Table: Types of Promissory Notes

TypeUse CaseKey Features
Simple Promissory NoteInformal loans between friends or familyBasic terms, straightforward
Secured Promissory NoteLoans involving collateralIncludes collateral details for added security
Balloon Payment Promissory NoteLoans with smaller periodic payments and a large final paymentDetailed repayment schedule with balloon payment

Final Thoughts

Writing an effective promissory note is a crucial step in formalizing a loan agreement. By following the guidelines and templates provided, you can create a clear and legally binding document that protects both parties’ interests.