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Unsecured Promissory Note Template – Free Download 2026

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Electronic Signature Accepted

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When Do You Need a Unsecured Promissory Note?

You are lending money to a friend, family member, or business associate based on trust and creditworthiness, without requiring the borrower to pledge collateral. An unsecured promissory note creates a legally enforceable obligation to repay while keeping the arrangement simple.

You need a written record of a personal loan to comply with IRS requirements and prevent the loan from being reclassified as a gift. The note should state an interest rate at or above the Applicable Federal Rate to avoid imputed interest tax issues.

Your business is issuing a short-term note to an investor, vendor, or employee, and no collateral is available or warranted given the loan amount and relationship. The note documents the repayment terms and provides the lender with a basis for legal action if the borrower defaults.

You want to create a demand note that allows the lender to call the loan at any time rather than setting a fixed repayment schedule. Demand notes are common for informal lending arrangements where the lender wants maximum flexibility on when to require repayment.

You previously made a verbal loan and now want to formalize it in writing. Converting an oral agreement to a signed loan agreement or unsecured promissory note strengthens the lender's position if the borrower later disputes the existence or terms of the loan.

The loan amount is relatively small and does not justify the cost of creating a security agreement, filing a UCC-1, or appraising collateral. An unsecured note provides basic legal protection without the administrative overhead of a secured arrangement.

What Should a Unsecured Promissory Note Include?

Maker and Payee Identification

Identify the maker (borrower) and payee (lender) by full legal name and address. If either party is a business entity, include the entity type, state of formation, and the authorized signer's name and title.

Principal Amount and Interest Rate

State the principal amount in numerals and words. Specify the annual interest rate, whether it is fixed or variable, and how interest accrues (simple or compound). For loans between related parties, the IRS requires the rate to meet or exceed the Applicable Federal Rate to avoid gift tax implications.

Repayment Structure

Choose the repayment type: installment payments on a fixed schedule, a lump-sum payment at maturity, or a demand note where the lender can request full repayment at any time. For installment notes, specify the payment amount, frequency, and dates. For demand notes, state the number of days' notice required before payment is due.

Late Payment and Prepayment Provisions

State the late fee amount or percentage and the grace period. Specify whether the borrower can prepay the note in full or in part without penalty. Most unsecured notes allow prepayment without penalty to encourage early repayment.

Default and Remedies

Define events of default, including missed payments, bankruptcy filing, and material misrepresentation. Specify the lender's remedies, which for unsecured notes are limited to acceleration of the remaining balance and filing a lawsuit to obtain a default judgment and pursue collection action.

Governing Law and Signatures

Specify which state's law governs the note. Under UCC Article 3, a promissory note is a negotiable instrument that can be transferred to a third party. The maker must sign the note. Electronic signatures are valid under the ESIGN Act, though many lenders prefer wet ink originals.

Signature Requirements

Electronic Signature Accepted

Unsecured promissory notes are valid with electronic signatures under the ESIGN Act. Only the borrower's signature is legally required, though both parties typically sign. Notarization is optional but can help prove authenticity if the note is later disputed.

How to Fill Out a Unsecured Promissory Note

1

Enter Party Information

Fill in the full legal name and address of the maker (borrower) and payee (lender). If either party is a business, include the entity name, type, and state of organization.

2

Set the Principal and Interest

Enter the loan amount in numerals and words. Set the annual interest rate and specify whether interest accrues as simple or compound. Check your state's usury law to confirm the rate is within legal limits.

3

Choose the Repayment Structure

Select the repayment type. For installment notes, enter the payment amount and schedule. For lump-sum notes, enter the maturity date. For demand notes, specify the notice period (typically 30 to 90 days) the lender must provide before requiring payment.

4

Set Late Fees and Prepayment Terms

Enter the late payment fee (typically 5% of the missed payment or a flat dollar amount) and the grace period (typically 10 to 15 days). Decide whether the borrower can prepay without penalty.

5

Review Default Provisions

Confirm the default triggers and remedies. For unsecured notes, the primary remedy is acceleration followed by a lawsuit. Consider adding an attorney fee provision so the lender can recover legal costs if they must sue to collect.

6

Sign and Distribute

The maker signs and dates the promissory note. Each party should retain an original signed copy. The lender should store the original note securely, as the holder of the original note has the strongest enforcement position under UCC Article 3.

Free Template vs Custom Unsecured Promissory Note

FeatureFree TemplateCustom (AI or Attorney)
Basic unsecured note structure
Interest rate and repayment terms
State-specific usury complianceRate limits vary by state-
Demand note and installment options-
Attorney review and customization-
Digital download (PDF/Word)

Unsecured Promissory Note Template FAQ

What is an unsecured promissory note?
An unsecured promissory note is a written promise by a borrower to repay a loan without pledging any collateral as security. The lender relies entirely on the borrower's creditworthiness and promise to pay. If the borrower defaults, the lender has no property to seize and must instead file a lawsuit to obtain a court judgment before pursuing collection actions such as wage garnishment or bank account levies. Unsecured notes are commonly used for personal loans, family loans, and small business lending.
Is an unsecured promissory note enforceable?
Yes, an unsecured promissory note is legally enforceable when it is properly signed by the maker and contains the essential terms: the principal amount, interest rate, repayment terms, and the parties' names. Under UCC Article 3, a promissory note is a negotiable instrument with legal standing in court. The lender can sue the borrower for breach and obtain a judgment for the outstanding balance plus interest and fees. The note's enforceability does not depend on whether collateral is pledged.
What happens if someone defaults on an unsecured note?
When a borrower defaults on an unsecured note, the lender can accelerate the remaining balance and demand full payment. If the borrower does not pay, the lender's primary remedy is filing a civil lawsuit. If the lender prevails, the court issues a judgment that allows the lender to garnish wages, levy bank accounts, and place liens on the borrower's real property. The judgment typically accrues interest at the state's judgment rate and can be renewed. Collection can be more difficult than with secured notes because there is no specific collateral to seize.
What is a demand promissory note?
A demand promissory note is a type of unsecured (or secured) note that does not have a fixed maturity date. Instead, the lender can demand full repayment at any time by providing written notice to the borrower. The notice period is typically 30 to 90 days, depending on the terms stated in the note. Demand notes are popular for informal loans between friends, family, and business associates because they give the lender flexibility. If no demand is made, the borrower may continue making payments indefinitely.
Do unsecured notes charge higher interest?
Unsecured promissory notes typically carry higher interest rates than secured notes because the lender assumes more risk without collateral. If the borrower defaults, the lender has no property to seize and must rely on the judicial collection process, which is more time-consuming and uncertain. To compensate for this increased risk, lenders charge a risk premium in the form of a higher interest rate. The exact rate depends on the borrower's creditworthiness, the loan amount, and the prevailing market conditions, subject to state usury law limits.
Can you sue on an unsecured promissory note?
Yes, a lender can sue on an unsecured promissory note if the borrower fails to pay as agreed. The lawsuit is typically filed in the court with jurisdiction over the amount in dispute (small claims court for smaller amounts, civil court for larger amounts). The lender presents the signed note as evidence of the debt and the borrower's failure to pay. If the borrower does not respond or cannot prove they paid, the court issues a default judgment or judgment after trial. The statute of limitations for suing on a promissory note varies by state.
What is the statute of limitations on a promissory note?
The statute of limitations for enforcing a promissory note varies by state, ranging from 3 to 10 years. Under UCC Article 3, the statute of limitations begins to run when the note becomes due (either the maturity date or the date of demand). For installment notes, each missed payment may start a separate limitations period. Once the statute expires, the lender can no longer file a lawsuit to collect. Some states distinguish between written and oral agreements, with written instruments like promissory notes typically having a longer limitations period.
Should a promissory note be notarized?
Notarization is not legally required for a promissory note to be enforceable. The maker's signature alone creates a binding obligation. However, notarization provides several practical benefits: it verifies the maker's identity, deters claims of forged signatures, and may be required by some lenders or financial institutions as a condition of the loan. If the promissory note is accompanied by a security agreement involving real property, the security instrument must be notarized for recording purposes, even if the note itself does not require it.

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Reviewed by licensed attorneys · Editorial policy · Last updated March 2026

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