Promissory Note Template

Lending money to family, a friend, or a business? A promissory note turns "they said they'd pay me back" into an enforceable written promise with a schedule, an interest rate, and a consequence for missing payments.

Create Your Promissory Note See pricing

When to use a promissory note

Lending money to a family member or friend
A business loan between a founder and their own company
Seller financing on a car, equipment, or property
Converting an unpaid invoice or old debt into a structured payment plan
Documenting a down-payment gift or loan for a mortgage lender

Secured vs. unsecured notes

An unsecured note is a bare promise to pay. If the borrower defaults, the lender's remedy is to sue and then collect on the judgment.

A secured note names collateral — a vehicle, equipment, an account — that the lender can claim on default. Secured notes get repaid more often, and the collateral description needs to be specific enough to identify the item.

What information you'll need

Names and addresses of the lender and the borrower
Principal amount and the date funds are advanced
Interest rate, if any, and whether it's simple or compounding
Repayment: lump sum on a date, or installments with amounts and due dates
Late fee and grace period
What counts as default and what the lender can do about it
Collateral, if the note is secured

Interest, usury limits, and taxes

Every state caps the interest a private lender can charge, and the caps vary widely. Charging above the state usury limit can void the interest entirely and, in some states, the principal too. When in doubt, a modest rate is safer than an aggressive one.

For family loans, the IRS expects interest at or above the Applicable Federal Rate. Below that, the difference can be treated as a gift or as imputed interest income. A zero-interest loan between relatives is common but has tax consequences worth knowing about.

Keep proof of the transfer — a check or a bank transfer, not cash. A signed note plus a bank record is close to unbeatable evidence if you ever need to collect.

A note on legal advice

Easy Legal AI is not a law firm and does not provide legal advice or attorney representation. This page and the documents it creates are self-help tools. Laws differ by state and change over time — for a high-value dispute or an unusual situation, have a licensed attorney in your state review the document before you rely on it.

Frequently asked questions

›Is a promissory note legally binding?

Yes. A signed note stating the amount, the parties, and the repayment terms is an enforceable contract in every state. Notarization isn't required but makes the signature harder to dispute.

›What's the difference between a promissory note and an IOU?

An IOU acknowledges a debt exists. A promissory note also sets out when and how it gets repaid, what interest applies, and what happens on default — which is what makes it collectible.

›How long do I have to collect on a note?

The statute of limitations on written contracts runs roughly three to ten years depending on the state, usually measured from the missed payment. Waiting too long can extinguish the claim entirely.

›What if the borrower stops paying?

Send a written demand referencing the note and the missed payments, with a deadline. If that doesn't work, the note is the core evidence in a small claims or civil filing.

Ready to get started?

Preview any document free. Unlimited downloads for $19.99/month — cancel anytime.

Start a document See pricing