Promissory Note Template, Free Download 2026
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When Do You Need a Promissory Note?
You are lending money to a family member, friend, or business associate and need a simple promissory note (sometimes called an IOU template) establishing the loan amount, repayment schedule, interest rate, and consequences of default to prevent misunderstandings and preserve the relationship.
A small business is borrowing money from an investor, partner, or private lender and needs formal loan documentation that defines the terms, protects both parties, and satisfies IRS requirements for documenting bona fide debt obligations.
You are financing a private-party sale of a vehicle, equipment, or other personal property through installment payments and need a promissory note to document the debt alongside a bill of sale form that records the underlying transaction.
A real estate transaction involves seller financing where the property seller acts as the lender, carrying back a mortgage or deed of trust secured by the property, and a promissory note is needed to document the payment terms of the underlying debt obligation.
An employee is receiving a loan or salary advance from their employer and both parties need written documentation establishing the repayment terms, payroll deduction authorization, and what happens if the employee leaves the company before the loan is repaid.
A settlement agreement requires one party to make payments over time, and a promissory note is needed to formalize the payment obligation with specific terms regarding amounts, schedule, interest, and remedies for default.
What Should a Promissory Note Include?
Borrower and Lender Identification
Identify the borrower (also called the maker or payor) and the lender (also called the payee or holder) by full legal name, address, and contact information. If the borrower is a business entity, include the entity name, state of formation, and the authorized signatory. If multiple borrowers are signing, specify whether their obligation is joint and several (each individually liable for the full amount) or several only.
Principal Amount and Disbursement
State the total principal amount of the loan in both numerals and written words. Specify the disbursement date and method (wire transfer, check, cash). If the loan is being disbursed in installments rather than a lump sum, attach a disbursement schedule. The principal amount is the baseline for all interest calculations and is the amount upon which the borrower's repayment obligation is based.
Interest Rate and Calculation Method
Specify the annual interest rate, whether it is fixed or variable, and the calculation method (simple interest or compound interest). For variable rates, identify the index (such as the prime rate or SOFR) and the margin added to it. Ensure the interest rate complies with your state's usury laws, which set maximum allowable interest rates for different types of loans. Charging interest above the usury limit can void the interest obligation entirely and, in some states, expose the lender to penalties.
Repayment Terms and Schedule
Define the repayment structure: installment payments (fixed monthly, biweekly, or quarterly amounts), interest-only payments with a balloon payment at maturity, or a single lump-sum payment at a specified date. Include the first payment date, the payment amount, the frequency, and the final maturity date. Attach an amortization schedule for installment loans showing how each payment is allocated between principal and interest.
Late Payment Penalties and Default Provisions
Specify the grace period after which a payment is considered late (typically five to fifteen days), the late fee amount or calculation, and the definition of default (typically failure to make a payment within a specified period after the due date). Define the lender's remedies upon default, which may include acceleration of the entire balance, additional default interest, and the right to pursue collection. Include a notice requirement before declaring default.
Prepayment Terms
State whether the borrower may prepay the loan in whole or in part without penalty. Some promissory notes include prepayment penalties to protect the lender's expected interest income, particularly for longer-term loans with below-market interest rates. If prepayment is permitted, specify how prepayments are applied (to future installments, to the principal balance, or to interest first). Many personal loans and smaller commercial loans allow unrestricted prepayment.
Security and Collateral (if applicable)
If the loan is secured by collateral, identify the collateral with specificity (vehicle VIN, real property legal description, equipment serial numbers, or other assets). Reference the separate security agreement, mortgage, or deed of trust that creates the lien. For unsecured promissory notes, state explicitly that the note is unsecured and that the borrower's personal guarantee or general creditworthiness supports the obligation.
Governing Law and Dispute Resolution
Specify which state's laws govern the promissory note, including its usury laws as outlined in relevant UCC Article 3 provisions for negotiable instruments, and whether disputes will be resolved through litigation, mediation, or arbitration. Include a prevailing-party attorneys' fee provision that entitles the winner in any collection action to recover their legal costs. Designate the venue for any legal proceedings, which is typically the county where the lender resides or where the collateral is located.
Legal Details: Key Clauses in a Promissory Note
Parties and Definitions
This Promissory Note (the "Note") is made and entered into as of [____________] (the "Effective Date"), by [____________] (the "Maker"), whose principal address is [____________], in favor of [____________] (the "Payee"), whose principal address is [____________]. As used herein, "Maker" and "Payee" shall include their respective heirs, executors, administrators, legal representatives, successors, and assigns, unless the context otherwise requires.
For purposes of this Note, the following terms shall have the meanings set forth below: "Business Day" means any day other than a Saturday, Sunday, or federal holiday on which commercial banks in the State of [____________] are authorized or required to close. "Default Rate" shall mean the rate specified in Article VI hereof. "Maturity Date" means the date on which all outstanding principal and accrued interest shall be due and payable in full, as set forth in Article IV.
Principal Amount
For value received, Maker unconditionally promises to pay to the order of Payee the principal sum of [$__________] (the "Principal Amount"), together with interest thereon as provided herein, in lawful money of the United States of America, without offset, deduction, or counterclaim. The Principal Amount represents the total sum advanced by Payee to Maker on or before the Effective Date, receipt of which is hereby acknowledged by Maker.
All payments of principal and interest shall be made by Maker to Payee at the address set forth above, or at such other place as Payee may designate in writing from time to time. Payments shall be made by certified check, wire transfer, or ACH electronic funds transfer to an account designated by Payee. Payments received after 5:00 p.m. local time at Payee's address shall be deemed received on the next succeeding Business Day.
Interest Rate
The outstanding Principal Amount shall bear interest at a fixed rate of [____]% per annum (the "Interest Rate"), computed on the basis of a 365-day year and the actual number of days elapsed. Interest shall accrue from and including the Effective Date through and including the date on which the Principal Amount is repaid in full. In no event shall the Interest Rate exceed the maximum rate permitted by applicable usury laws of the State of [____________], and any interest paid in excess of such maximum rate shall be applied to the reduction of principal or refunded to Maker.
Notwithstanding any provision of this Note to the contrary, in the event that a court of competent jurisdiction determines that the Interest Rate or any other charges hereunder exceed the maximum rate or amount permitted by applicable law, including but not limited to the usury statutes of the State of [____________], such rate or amount shall be automatically reduced to the maximum lawful rate or amount, and any excess interest theretofore collected shall be applied to the outstanding Principal Amount or, if the Principal Amount has been paid in full, refunded to Maker.
Payment Terms
Maker shall pay the Principal Amount and all accrued interest in [monthly/quarterly] installments of [$__________] each, commencing on [____________] and continuing on the same day of each successive [month/quarter] thereafter until the Maturity Date of [____________], on which date all remaining unpaid principal, accrued and unpaid interest, and any other amounts due under this Note shall be due and payable in full (the "Balloon Payment"). Each installment payment shall be applied first to accrued interest and then to the reduction of the outstanding Principal Amount.
If any payment due date falls on a day that is not a Business Day, such payment shall be due on the next succeeding Business Day, and additional interest shall accrue for such extended period. Maker shall pay a late charge equal to [____]% of any installment payment not received within [____] calendar days after the date such payment is due (the "Late Charge"), which Late Charge shall constitute liquidated damages and not a penalty. Maker acknowledges that late payments will cause Payee to incur costs not contemplated under this Note, and the Late Charge represents a reasonable estimate of such costs.
Maker shall have the right to designate the application of any payment to principal or interest; provided, however, that in the absence of such designation, Payee shall apply payments first to accrued Late Charges, then to accrued and unpaid interest, and finally to the outstanding Principal Amount. All payments shall be made without any set-off, counterclaim, or deduction whatsoever, and free and clear of any taxes, levies, or withholdings.
Prepayment
Maker may prepay the outstanding Principal Amount, in whole or in part, at any time without premium or penalty, upon not less than [____] days' prior written notice to Payee specifying the intended prepayment date and the amount to be prepaid. Any partial prepayment shall be applied to the outstanding Principal Amount in the inverse order of maturity unless otherwise agreed in writing by Payee. Accrued interest on the prepaid principal shall be paid through and including the date of prepayment.
No partial prepayment shall relieve Maker of the obligation to make regularly scheduled installment payments as provided in Article IV until the Principal Amount and all accrued interest have been paid in full. Following any partial prepayment, Payee shall, upon written request from Maker, provide a written statement of the remaining Principal Amount and the revised payment schedule, if applicable.
Default
The occurrence of any one or more of the following events shall constitute an "Event of Default" under this Note: (a) Maker's failure to make any payment of principal, interest, or other amount due hereunder within [____] days after the date when due; (b) Maker's breach of any representation, warranty, covenant, or obligation contained in this Note; (c) the filing by or against Maker of any petition under the United States Bankruptcy Code (Title 11 U.S.C.), or any state insolvency law, or the appointment of a receiver, trustee, or custodian for any substantial part of Maker's property; (d) the entry of any judgment against Maker in excess of [$__________] that remains unsatisfied or unstayed for a period of [____] days; or (e) the death or legal incapacity of Maker, if an individual.
Upon the occurrence of an Event of Default, the outstanding Principal Amount shall, at Payee's option, bear interest at the Default Rate of [____]% per annum or the maximum rate permitted by applicable law, whichever is less (the "Default Rate"), from the date of such Event of Default until the date all amounts due hereunder are paid in full. The Default Rate shall apply in addition to, and not in lieu of, any Late Charges assessed under Article IV.
Acceleration
Upon the occurrence of any Event of Default described in Article VI, Payee may, at Payee's sole option and without further notice or demand (except as may be required by applicable law), declare the entire unpaid Principal Amount, together with all accrued and unpaid interest, Late Charges, and all other amounts due under this Note, to be immediately due and payable in full (the "Acceleration"). Notwithstanding the foregoing, upon the occurrence of an Event of Default described in Section 6.1(c), the outstanding Principal Amount and all other amounts due hereunder shall be automatically accelerated and immediately due and payable without any notice, demand, or action by Payee.
Payee's failure or delay in exercising any right or remedy under this Note, including the right to accelerate, shall not constitute a waiver thereof, nor shall any single or partial exercise of any right or remedy preclude any other or further exercise thereof or the exercise of any other right or remedy. All rights and remedies of Payee under this Note are cumulative and are in addition to all other rights and remedies provided by law or in equity.
Waivers
Maker hereby waives presentment for payment, demand, notice of dishonor, protest, and notice of protest with respect to this Note, and all other notices or demands in connection with the delivery, acceptance, performance, default, or enforcement of this Note, to the fullest extent permitted by the Uniform Commercial Code as adopted in the State of [____________] and all other applicable laws. Maker further waives all rights to claim or assert any homestead or other exemption rights under applicable federal or state law to prevent the satisfaction of any judgment obtained by Payee in connection with this Note.
No waiver by Payee of any provision of this Note shall be deemed a waiver of any other provision or of any subsequent breach of the same or any other provision. Any waiver must be in writing and signed by Payee to be effective. Maker agrees that the obligations under this Note are absolute and unconditional and shall not be subject to any right of set-off, counterclaim, recoupment, defense, or abatement.
Governing Law and Dispute Resolution
This Note shall be governed by and construed in accordance with the laws of the State of [____________], without giving effect to principles of conflicts of law that would require the application of the laws of another jurisdiction. Maker irrevocably consents to the exclusive jurisdiction and venue of the state and federal courts located in [____________] County, [____________], for any action or proceeding arising out of or relating to this Note, and waives any objection to such jurisdiction or venue, including on grounds of inconvenient forum.
In the event Payee commences any action or proceeding to enforce this Note or collect any amounts due hereunder, Maker shall pay all reasonable attorneys' fees, court costs, and collection expenses incurred by Payee in connection therewith, whether or not suit is filed, including fees and costs incurred in connection with any appeal, bankruptcy proceeding, or post-judgment collection action. This Note may not be modified, amended, or supplemented except by a written instrument signed by both Maker and Payee.
Signature Requirements
E-Signature Valid
Promissory notes are valid with electronic signatures. For negotiable instruments, consult state UCC provisions.
Related Contracts & Agreements Templates
A promissory note is often used alongside other contracts & agreements documents. Depending on your situation, you may also need:
How to Fill Out a Promissory Note
Enter Party Information
Fill in the full legal names and addresses of both the borrower and lender. If either party is a business entity, use the registered legal name, not a trade name. For multiple borrowers, list each one and specify joint and several liability if applicable. Include contact information for sending payment notices and default notifications.
Specify the Loan Amount and Interest Rate
Enter the principal amount in both numerical and written form (for example, "$25,000 (Twenty-Five Thousand Dollars)"). Enter the annual interest rate and select simple or compound interest calculation. Verify that the interest rate does not exceed your state's usury limit. For interest-free loans between family members, the IRS may impute interest at the Applicable Federal Rate, so consider charging at least the minimum AFR to avoid tax complications.
Define the Repayment Schedule
Select the repayment structure (installment, interest-only with balloon, or lump sum). Enter the first payment date, payment frequency, payment amount, and maturity date. For installment loans, use an amortization calculator to determine the correct payment amount that will fully retire the principal and interest by the maturity date. Attach the amortization schedule as an exhibit.
Set Default and Late Payment Terms
Enter the grace period (number of days after the due date before a late fee applies), the late fee amount or percentage, and the number of days of non-payment that constitute a default. Specify whether default triggers acceleration of the entire balance. Include the notice method and period required before the lender can declare a default and pursue remedies.
Address Security and Collateral
If the loan is secured, describe the collateral in detail and reference the security instrument (mortgage, deed of trust, UCC financing statement, or security agreement). If unsecured, check the unsecured note option. For loans secured by real property, the promissory note and mortgage or deed of trust should be prepared and executed together as companion documents. Consider whether a quitclaim deed template may be relevant for transferring property interests in connection with the financing.
Execute and Secure the Note
The borrower must sign and date the promissory note. While the lender's signature is not technically required (because the note is the borrower's promise to pay), having both parties sign creates a more complete record. Notarization is recommended, especially for secured notes. Save the completed promissory note PDF and retain the original signed note in a secure location, as it is a negotiable instrument and possession of the original may be required to enforce it in court.
Free Template vs Custom Promissory Note
| Feature | Free Template | Custom (AI or Attorney) |
|---|---|---|
| Basic unsecured promissory note form in printable format | ||
| Secured note with collateral descriptionIncludes security agreement integration | - | |
| Installment payment with amortization scheduleFree version includes basic installment terms | ||
| Interest-only with balloon payment structure | - | |
| State-specific usury compliance verificationUsury limits vary significantly by state | - | |
| Late payment and default acceleration provisions | ||
| Prepayment terms and penalty options | - | |
| Demand note (payable on lender demand) | - |
Key Facts About Promissory Note Documents
Maker promises to pay payee specified amount.
Promissory note specifies repayment terms and interest.
Default triggers acceleration of remaining balance.
Secured promissory note is backed by collateral.
Promissory note is a negotiable instrument under UCC.
Key Legal Terms in a Promissory Note
When a Free Template Is Not Enough
Free templates cover standard situations, but a professionally drafted promissory note accounts for state-specific requirements, unusual circumstances, and enforceability considerations that generic forms miss. If your situation involves significant assets, complex terms, or potential disputes, request an attorney-drafted promissory note with a custom quote based on your situation.
Promissory Note Template FAQ
What is a promissory note and how is it different from a loan agreement?
Does a promissory note need to be notarized?
How long is a promissory note valid?
Can a promissory note be enforced in court?
What happens if the borrower cannot repay a promissory note?
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