How to Create a Promissory Note

Promissory notes are written debt agreements.

Promissory notes are written debt agreements that detail who owes whom, the amount of the debt, the timing and the methods for payment. Promissory notes can be, and often are, very simple agreements between parties, though certain issues should be considered before a promissory note is entered.

Instructions

1. Enter a transaction requiring debt. Before a promissory note is necessary, one party must owe another. Frequently, this is in the course of a sales transaction.

2. Determine whether a promissory note is sufficient. A promissory note is a useful instrument for small loan agreements and loans that do not involve real estate. If the transaction is large or involves real estate, consider a more sophisticated loan agreement.

3. Identify the parties and the debt. A promissory note must clearly identify the promisor and the promisee and describe the amount of the debt.

4. Agree on terms for repayment, including the timing and means for repayment. This can include interest charges and late payment fees.

5. Confirm that the interest terms do not constitute usury, an impermissible high interest rate or unreasonably high fees for other purposes. Usury is not allowed under law. Only reasonable and non-punitive terms can appear in a promissory note.

Tips & Warnings

• Consult an attorney for promissory notes involving large amounts of money.

References

• ExpertLaw.com: The Promissory Note

Resources

• Read this Article in Spanish