A promissory note is a written, signed promise to repay a loan. It puts the amount, the interest, and the repayment schedule in plain writing, so a personal or business loan does not come down to anyone's memory. It is simpler than a full loan agreement and is signed mainly by the borrower.
Free to use. Legally binding under the ESIGN Act, UETA, and eIDAS.Updated July 2026 by Document eSign
A promissory note is a written promise by one person, the borrower, to repay a set amount of money to another, the lender, either on demand or by a certain date, usually with interest. It is the document that turns a loan into a clear, enforceable record: who borrowed, how much, at what rate, and on what schedule. A promissory note is simpler and more one-directional than a full loan agreement, which is a longer contract with more conditions on both sides. Notes are common for smaller loans and where the two sides trust each other. A note can be unsecured, backed only by the borrower's promise, or secured by collateral the lender can take if the borrower does not pay.
Who uses it
A person lending money to a family member or friendA small business borrowing from, or lending to, another partyA private seller who is financing part of a saleA founder documenting a loan they made to their own companyAnyone who wants a clear, signed record of a loan and its terms
What's inside
The names of the lender and borrower, and the loan date
The principal amount being borrowed
The interest rate, with a cap so it stays within state usury limits
The repayment schedule: installments, a lump sum, or on demand
The maturity date and prepayment terms
A late fee and a default and acceleration clause
Whether the note is secured, and a description of any collateral
Who pays collection costs, and a governing-law line
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01
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02
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03
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The details
Everything to know before you send it.
1
How to fill it in
This promissory note form is short, but a few fields decide whether it actually protects you. Set the interest and repayment terms carefully, and be clear about whether anything backs the loan.
Principal and interest: the exact amount borrowed and the yearly rate. Keep the rate under your state's usury cap (more on that below).
Repayment: pick installments, a single payment at maturity, or on demand, and fill in the amounts and dates.
Late fee and default: set how many days late triggers a fee and a default, so there is no argument later.
Security: state plainly whether the note is unsecured or secured, and if secured, describe the collateral and back it with a separate security agreement.
Both parties sign, and each keeps a copy.
2
Promissory note vs. loan agreement
They do similar jobs at different weights. A promissory note is short and focused on the borrower's promise to repay, and it is usually signed by the borrower alone. A loan agreement is a longer, bilateral contract with more detailed terms and conditions, or covenants, on both sides, and both parties sign it. Reach for a note when the amount is modest and the two sides trust each other. Use a full loan agreement for a large loan, a commercial deal, or where you want tighter controls on how the borrower behaves while the loan is outstanding.
3
Types of promissory note
Notes vary along three lines, and you can mix them. A note is either secured, backed by collateral like a car or property that the lender can claim on default, or unsecured, backed only by the promise to pay; unsecured notes usually carry a higher rate. On timing, a demand note is payable whenever the lender asks, while a term note has a fixed maturity date. And on repayment, an installment note is paid off in regular amounts, while a balloon note takes small payments and then one large final payment of the remaining principal. Pick the combination that matches the deal.
4
Interest and your state's usury cap
Interest is where notes most often go wrong. Most states set a maximum interest rate through their usury laws, and those caps and their exceptions vary a lot from state to state and by the type of loan. Usury rules apply to loans between family and friends too, not just banks. Charging more than the cap is not a small thing: depending on the state, it can void the interest, void the whole note, or bring penalties that let the borrower recover several times the interest paid. Because there is no single national number, set your rate against your own state's limit, and if the loan is large or the rate is high, have a lawyer confirm it.
5
Family loans and the IRS
Lending to family at zero or a very low rate can create a tax surprise. Under the below-market loan rules in Internal Revenue Code section 7872, the IRS can treat you as if you charged interest at its Applicable Federal Rate (AFR), which it publishes every month, and tax you on that imputed interest even though you never collected it. Two thresholds soften this for gift loans between individuals: the rules generally do not apply while the total balance between the two people stays at or under $10,000 (unless the loan buys income-producing assets), and for balances up to $100,000 the imputed interest is capped at the borrower's net investment income. The simple fix is to charge at least the current AFR and write that rate into the note. For anything sizable, talk to a tax professional, since gift and imputed-interest rules interact.
6
Default, acceleration, and collateral
The clauses that matter most are the ones you hope never to use. An acceleration clause lets the lender demand the entire remaining balance at once if the borrower defaults, instead of waiting out the schedule; without it, a lender can be stuck collecting missed payments one at a time. On default a lender can also charge a higher default rate and, on a secured note, go after the collateral. One caution: calling a note secured does not by itself create a lien. To actually be able to claim the collateral, the lender needs a separate security agreement, and usually a UCC-1 filing for personal property or a mortgage or deed of trust for real estate.
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Signing it, and when to see a lawyer
A promissory note is generally enforceable once the borrower signs it, and in most states, for most notes, it does not need to be notarized or witnessed, though notarizing can make it harder to dispute later and some states expect it for real-estate-backed notes. If the note is an unconditional promise to pay a fixed amount, payable on demand or at a set time, it can be a negotiable instrument under the Uniform Commercial Code, which means the lender can transfer it to someone else who can then collect. Handle a simple loan yourself, but bring in a lawyer for a large loan, a secured loan (especially one tied to real estate), business financing, or any note with unusual terms.
8
Common mistakes
Most promissory-note trouble traces back to a few gaps.
Leaving the interest rate or repayment terms vague, or setting a rate above the state usury cap.
Forgetting the borrower's signature, which is what makes the promise enforceable.
Charging zero or below-market interest on a family loan and ignoring the IRS AFR.
Skipping the default and acceleration clause, so a missed payment cannot speed up the balance.
Calling the note secured without a separate security agreement or a UCC-1 or mortgage to back it up.
This template and the guidance on this page are provided for general information only and are not legal advice. Laws differ by country and state, so review the final document against your own situation and have a qualified lawyer check anything high-value or regulated before you sign.
FAQ
Questions, answered.
What is a promissory note?
It is a written, signed promise by a borrower to repay a set amount of money to a lender, on demand or by a certain date, usually with interest. It is the record of a debt and its terms. A promissory note is simpler than a full loan agreement and is used most for smaller or private loans.
Is a promissory note legally binding?
Yes. Once the borrower signs it, a promissory note is a legally enforceable promise to repay. If the borrower does not pay, the lender can use the note to collect, including in court. To hold up, it should clearly state the amount, the interest, the repayment terms, and be signed.
Does a promissory note have to be notarized?
Usually no. In most states, for most notes, a promissory note is valid once the borrower signs it, without notarization or witnesses. Notarizing is optional and can make the note harder to challenge later, and a few states may expect it for notes secured by real estate. Check your state if property is involved.
What is the difference between a promissory note and a loan agreement?
A promissory note is short and centers on the borrower's promise to repay, usually signed by the borrower alone. A loan agreement is a longer, two-sided contract with more detailed conditions, signed by both parties. Use a note for smaller, trusting loans; use a loan agreement for larger or more complex deals.
How much interest can I charge on a promissory note?
Up to your state's usury cap, which varies widely by state and loan type, and applies even to loans between family and friends. Going over the cap can void the interest or the whole note or bring penalties. There is no single national rate, so set yours against your state's limit and get advice if the rate is high.
Do I have to charge interest on a loan to family?
Not by state law, but the IRS may treat a zero or below-market family loan as if you charged interest at its Applicable Federal Rate and tax you on that. Small gift loans (generally up to $10,000) are usually exempt. The easy fix is to charge at least the current AFR and put it in the note; ask a tax pro for larger loans.
What is an acceleration clause?
It is the term that lets the lender demand the entire remaining balance at once if the borrower defaults, rather than waiting out the original schedule. Without it, a lender may only be able to collect the missed payments as they come due. Most well-drafted notes include one.
Should my note be secured or unsecured?
A secured note is backed by collateral the lender can take if you do not pay, which lowers the lender's risk and often the rate; an unsecured note relies only on your promise and usually costs more. If you make a note secured, back it up with a separate security agreement and the right filing, or the collateral claim may not hold.
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