Promissory note: what it is and how to write one

What a promissory note must include

1. The names of the borrower and the lender.
2. The principal, the amount borrowed, in figures and in words.
3. The interest rate, or a line that says the note bears no interest.
4. When it is paid, on one date or in installments.
5. Where and how payments are made.
6. What happens if a payment is late, such as a late fee or acceleration.
7. The law of the state or country that governs the note.
8. The date and the signature of the borrower, and of any co-signer.

In the United States, a note that meets the rules of the Uniform Commercial Code can be transferred like a check. Most personal loans between people do not need that, but the same elements make the note clear.

Promissory note or loan agreement

For a loan between family members or a sale on credit to a customer, a promissory note is usually enough. A bank loan comes with both documents.

Secured or unsecured

An unsecured note rests on the promise alone. If the borrower does not pay, the lender has to sue to collect.

A secured note names collateral, such as a car or equipment, that the lender can claim if the borrower defaults. The collateral needs its own description and, in many places, a filing.

The generator on this page makes an unsecured note. Add a collateral clause by hand if you need one.

Single payment or installments

A single-payment note sets one due date for the whole amount. It suits short loans of a few weeks or months.

An installment note splits the amount into equal payments. Pick «Monthly installments» above the note and the generator makes one note per payment, numbered «1 of 12».

Separate notes per installment make collection easier. Each one has its own date and amount, and the borrower gets each back when it is paid.

A promissory note example

John Miller borrows USD 12,000 from Sarah Johnson to buy a used truck for his business. They agree on 6% interest per year and twelve monthly payments.

Each installment repays USD 1,000 of principal plus the interest on the balance. The full cost of the loan stays visible to both sides.

How to write a promissory note, step by step

1. Agree on the amount, the rate and the schedule before you write anything.
2. Fill in the names and addresses exactly as they appear on each ID.
3. Write the amount in figures and let the generator write it in words.
4. Choose a single payment or monthly installments.
5. Add the governing law and, if any, the co-signer.
6. Download and print the note. The borrower signs in ink in front of the lender.
7. Give the borrower a copy. The lender keeps the original.

Interest and usury limits

Most places cap the interest a private lender can charge. In the United States each state sets its own limit.

Check the cap in your state before you set the rate. A rate above it can make the interest unenforceable.

A note with no interest is valid too. Write that it bears no interest if paid on time.

Does a promissory note need a witness or a notary?

In most US states, no. The borrower signature makes the note valid. A notary adds proof that the borrower really signed.

Some countries treat notes differently. In India, the Information Technology Act leaves negotiable instruments other than cheques outside electronic signature, so the note is printed and signed by hand.

What to do when a payment is late

Send a reminder a few days before each due date and again on the day. Most missed payments are forgotten, not refused.

If the payment still does not come, send a written notice with the amount due and a new date. Keep a copy.

Makatea sends those reminders on WhatsApp before each due date and keeps the balance. When the borrower pays, Makatea logs it and moves to the next installment.

Common mistakes

• Leaving the due date blank. A note with no date is usually payable on demand.
• Writing different amounts in figures and in words.
• Signing a copy instead of the original. The lender needs the signed original to collect.
• Changing the terms by hand after signing. Sign a new note instead.
• Forgetting to mark installments as paid. Return or cancel each paid note.

Types of promissory notes

• Single-payment note. One amount, one due date, paid in full at the end.
• Installment note. Equal payments over a set period, often monthly.
• Demand note. No due date. The lender asks for payment when they choose, often with notice.
• Secured note. Backed by collateral the lender can claim on default.
• Student and business notes. Signed with a school or a bank, with their own terms.

The generator on this page covers the single-payment and the installment note. Those are the most common between people and small businesses.

How interest works on an installment note

With interest on the unpaid balance, each installment repays the same share of principal plus the interest of that month.

Early payments are larger because the balance is higher. Each later payment is a little smaller.

Example for USD 12,000 at 6% per year over twelve monthly installments. Total interest is USD 390.

Promissory notes for customer credit

Shops that sell furniture, phones or equipment on credit often ask the customer to sign a note per installment. The note records the debt and the schedule in one page.

Keep the signed notes in order by due date. Return each one when it is paid, or mark it paid and sign it.

A short reminder before each date keeps most accounts current. Makatea sends that reminder on WhatsApp and marks the installment when the payment lands.

What happens at the end

When the last payment arrives, the lender returns the original note marked «paid in full» and signed. The borrower keeps it as proof.

If the original is lost, the lender signs a release that names the note, the amount and the date it was paid.

Checklist before the borrower signs

• Both names match the IDs, letter by letter.
• The amount in figures matches the amount in words.
• The rate and the schedule are the ones you agreed.
• Every installment has a date and an amount.
• The governing law is the state or country where the lender can sue.
• The co-signer, if any, signs on the same page.
• Each side has a copy and the lender keeps the original.

Keep a record of every payment

Give the borrower a receipt for each payment, with the note number and the balance left. The receipt template on this site fills in the amount in words.

A running record avoids the most common dispute, which is how much is still owed. Both sides look at the same numbers every month.