A Promissory Note & Loaning Personal Money

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A promissory note is a written agreement between two people. Learn about a promissory note and its relationship to loaning personal money with help from a professional financial adviser in this free video clip.

Part of the Video Series: Insurance & Personal Finance FAQs
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Video Transcript

I'm Teresa Dentino, the CEO and Founder of The Financial 411 in Woodside, California. Today, we'll be talking about promissory notes when lending money among friends. Promissory note is simply a written agreement between two people where one makes a promise to pay or lend the other party a certain amount of money. When you write a promissory note with your friend to record this loan, there are six things that you really should include; the principal amount or the amount of money that you're lending the other person, the interest rate, the terms of repayment. The other things you'd want to include would be of course the names of the two people, yourself and the other person entering into the agreement. You want to have today's date, the agreement, the date of the agreement being signed and you also want like to put a maturity date attached to the loan. The other thing you want to do is that each party will then sign the document and date it and by doing so, this is going to make it an enforceable agreement. The terms of the note are entirely up to you and what you agreed to, between each of you. The most important thing is that you detail clearly in the note what it is that you both understand about the terms of repayment. There could be monthly repayment, annual repayment or lump sum payment. Sometimes people will use collateral within the loan as an insurance in case the other party does not pay. For maximum protection, you probably want to take the promissory note to a notary public and have it notarized. Remember that taking a time now to get the details in writing will save you a lot of problems down the road.

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