How to Draw Up a Promissory Note
- 1). Research your state's laws. Usury laws define the maximum interest rate that can be charged on a loan. Follow usury laws because violations can result in serious civil and/or criminal penalties.
Additionally, many states limit the amount of late fees that may be charged for overdue payments. Be sure to research your state's laws, as the promissory note may be void if you are in violation of the legal statutes. - 2). Use proper terminology. Remember that a promissory note is a legal document. If it should ever need to be enforced by a court, a promissory note must contain proper verbiage.
Promisor or Obligor: The borrower, or person who makes the promise to repay the loan.
Promisee or Obligee: The lender, or person who is entitled to receive the repayment of the loan.
Consideration: The value received by each party by entering into the agreement. The promisor receives the loan funds as consideration, and the promisee receives the promise of repayment as consideration.
Loan Terms: Terms which simply state the agreement. Remember to include the amount, length, and interest rate of the loan. Additionally, the terms should state how payments will be made (monthly, annually, etc.), when they are due, and what happens if they are late.
Security: The collateral, if any, for the loan. - 3). Use a generic legal form if necessary. If you are uncomfortable drawing up your own promissory note, a generic legal form is an option. Find generic forms in many office supply stores or online.
Some websites guide you through the process of completing a promissory note. Written by an attorney, the note is drafted in such a way as to specifically adhere to your state's laws. As of October 2009, the cost was about $15. You can print these notes immediately and avoid any mistakes you might make with generic forms.