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What is a Promissory Note?
Have you ever borrowed money to purchase a car or home? If you have, you most likely signed a document in which you promised to pay back the funds you borrowed. This document is called a Promissory Note.
How do promissory notes work?
After all, a promissory note is actually pretty simple. It is the written promise of a payment between one individual to another. It can be written for a number of things, including property purchasing, investments, simple transactions and money transfers. A promissory note can also be secured, but we’ll go into that on a later date.
All promissory notes have specific entries that should be written on the face of the paper to ensure its enforceability. These include: the names of the parties to the transaction, the amount being loaned, the interest rate,the date and each payment is due, the due date of the final payment, and penalties and fees that are charged if the payment terms are not honored. If done properly, a promissory note can be enforced in a court of law if the borrower defaults on his payments. This helps to protect the lender.
A promissory note is a common tool to evidence a loan transaction. If you are loaning money, you want to be sure to document the loan with a promissory note. When lending large amounts of money, you may want to use a secured promissory note. Setup Express, LLC has this document available in its library.