Promissory Note
A written promise to repay a loan on stated terms.
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Written to be usable as it stands. If the amount at stake is large or the other side has lawyers, a reviewed and jurisdiction-specific version is worth the fee.
| Principal amount | $ [amount] |
| Borrower | [borrower] |
| Lender | [lender] |
| Date | October 14, 2026 |
| Place | [place] |
FOR VALUE RECEIVED, the Borrower named above promises to pay to the order of the Lender the principal sum of $ [amount], without interest.
Repayment terms: [repayment terms]
The Borrower may repay early in whole or in part without penalty. If any instalment remains unpaid for thirty days, the whole outstanding balance becomes due at once at the Lender’s option. The Borrower waives presentment and notice of dishonour.
What is a Promissory Note?
A promissory note is a written promise by one party to pay a fixed sum to another, on a date or on demand, on stated terms. It turns a loan between a company and a director, a business and a supplier, or two people who know each other into something with a defined maturity, a rate and a record. Without one, a repayment dispute comes down to a bank transfer and two conflicting recollections of what was agreed.
Small businesses use notes for shareholder and director loans, deferred consideration on a sale, and short-term bridge funding from a known lender. Individuals use them for family loans and private lending backed by nothing but the promise. Finance teams use them to formalise an intercompany balance that has been sitting unexplained. They are also common in seller financing, where part of a purchase price is paid over time, and in convertible arrangements where a note converts into equity on a defined event.
Notes sit inside national instrument law and lending rules. India's Negotiable Instruments Act sets out what makes a note negotiable, and state stamp duty applies to the instrument — an unstamped or under-stamped note can run into evidential problems, so check the current rate in the relevant state. In the US, notes are governed by state law and by usury caps that limit the interest rate. UK and EU consumer credit regimes bring licensing and disclosure obligations where the borrower is an individual. Confirm the position before lending to a consumer.
A note records a promise; it does not create security. Unless it is paired with a separate charge, mortgage or hypothecation over an identified asset, the lender is an unsecured creditor and stands behind secured lenders if things go wrong. It also does not substitute for a full loan agreement where the arrangement carries covenants, staged drawdowns, conditions precedent or multiple lenders. And it is not financial or tax advice: interest income, withholding obligations and the treatment of a written-off loan all need an accountant.
What to put in a Promissory Note
These are the details this template asks for. Anything left blank is marked in red on the preview so you can see what is still missing.
| Field | What goes in it |
|---|---|
| Borrower | For example: James Whitfield |
| Lender | For example: Linda Alvarez |
| Principal amount | For example: 5,000.00 |
| Interest rate % per year optional | For example: 6 |
| Repayment terms | For example: Twelve equal monthly instalments beginning 1 October 2026. |
| Printing on stamp paper? | Free text |
| Stamp paper value optional | For example: $100 |
How to write a Promissory Note
Name the parties and state the principal
Give the maker — the party promising to pay — and the payee in full legal names, with company numbers or identification references and addresses. State the principal in figures and in words, with the currency named explicitly. If the money is advanced in tranches rather than at once, say so and attach a drawdown schedule instead of pretending a single date covers everything.
State the interest rate and its basis
Write the rate as a percentage per annum, say whether it is simple or compound and at what frequency it compounds, and give the day count basis. Then state what happens on late payment: a default rate, or interest continuing at the same rate. Check the applicable ceiling first, since several US states cap private lending rates and consumer credit rules elsewhere restrict what may be charged.
Fix the repayment schedule precisely
Choose the structure: a single payment on a maturity date, equal instalments, interest-only with a balloon, or payable on demand. Give the first and last payment dates, the amount of each payment, and the account payments go to. State how a payment is applied — costs first, then accrued interest, then principal — because that order decides how quickly the balance actually falls.
Add default, acceleration and prepayment
List the events of default: a missed payment past a stated grace period, insolvency, breach of another obligation. Say whether the whole balance becomes payable immediately on default and whether notice is required first. Then deal with prepayment — whether the borrower may repay early, whether a premium applies and how much notice is needed. Silence on prepayment causes arguments the day someone comes into money.
Sign, witness and record it properly
Have the maker sign and date it, add witnesses where local practice or the lender's requirements call for them, and attend to stamping or registration where the jurisdiction requires it. Keep the original safe, because with a negotiable instrument the physical document can matter. Record each payment against the note as it is received, and mark the note discharged and return it when the balance clears.
Common mistakes
- Writing the principal in figures only, so a disputed digit has nothing to check it against and the amount becomes a matter of argument.
- Setting a rate above the applicable state or consumer credit ceiling, which can render the interest — and in some places more than the interest — unrecoverable.
- Skipping stamp duty where the jurisdiction requires it, leaving a note that may be inadmissible or admissible only after a penalty is paid.
- Leaving out the application of payments, so the borrower treats every instalment as principal while the lender treats it as interest and the balances never reconcile.
- Calling a note secured with no separate charge over an identified asset, which leaves the lender unsecured in an insolvency they believed they were protected against.
Frequently asked questions
Is a promissory note legally binding?
A properly signed note recording a clear promise to pay a definite sum is generally enforceable as a contract, and in many jurisdictions as a negotiable instrument with its own procedural advantages. Enforceability can be affected by formalities such as stamping, by interest caps, and by consumer lending rules where the borrower is an individual. Check the local requirements before you rely on the note in court.
What is the difference between a promissory note and a loan agreement?
A note is a short one-way promise to pay signed by the borrower. A loan agreement is a two-way contract that can carry conditions, covenants, representations, drawdown mechanics and security. Notes suit simple advances between parties who know each other; loan agreements suit anything with conditions attached. Many transactions use both — an agreement setting the terms and a note evidencing the debt.
Does a promissory note need to be notarised?
Usually not for validity, though notarisation adds evidence of signature and date and some lenders insist on it. More likely to be mandatory is stamping — India applies state stamp duty to promissory notes, and other jurisdictions have their own document formalities. Witnessing is cheap insurance either way. Check the local rule rather than assuming a signature alone is enough.
Can a promissory note be interest free?
Yes, and family loans often are. Be aware that tax authorities in several countries impute interest on below-market loans in some circumstances, and that an interest free loan between related companies can attract transfer pricing attention. State clearly that no interest is payable rather than leaving the rate field blank, and ask an accountant how the arrangement will be treated.
What happens if the borrower does not pay?
The lender relies on what the note provides: a grace period, then acceleration of the whole balance, then recovery through the courts or a summary procedure where the jurisdiction offers one for negotiable instruments. Limitation periods apply and vary, so delay can cost you the claim. If the note is unsecured, recovery competes with every other unsecured creditor. Take advice early rather than after several missed payments.
This page explains general practice and is not legal advice. Requirements differ between countries and, in some cases, between states — check what applies where the document will be used.