A promissory note is a legally binding agreement in which the issuer promises in writing to pay a set amount of money to the payee at a determined point in the future.
In effect, a promissory note is a fancy way of promising to pay someone back. It’s a type of document that is found commonly in many aspects of financial transactions. Sometimes, promissory notes are also called loan agreements or IOUs.
If you are loaning or borrowing money, a promissory note is extremely useful to establish because it clearly outlines the terms of the arrangement, including payment details, interest, late fees, collateral, and timeframes and deadlines.
Another reason you would want to use a promissory note is that it is a legally enforceable document as it creates a legal obligation to repay the loan within the specified time. It can be used for mortgages, student loans, car loans, business and personal loans. In short, you’ll want to use a promissory note if:
Crucially, a promissory note states all of the relevant terms of the loan. Some of the important information to include in a promissory note would be:
It’s worth noting that which information and details you need to include in your promissory note are going to vary depending on your specific transaction.
For instance, a simple promissory note may be for a lump sum repayment on a certain date. Let’s say you lent your friend some money and they agree to repay you by the beginning of next month. In that agreement, the full amount is due on that date, and there is no payment schedule to worry about. As for interest, there may or may not be interest involved in the transaction, depending on what agreement you both came to.
A demand promissory note, on the other hand, requires repayment of the loan when the lender asks for the money back, however, typically a reasonable amount of notice is needed.
Even with a promissory note, there is no guarantee that the person or entity will actually pay you back. However, with a promissory note, you do have several options and courses of actions that you can take to get your money back.
We Can Help
At KAASS LAW, we understand accountability and mutual respect with business partners. It can be hard to mix friends and business but it’s always a good idea to keep emotions out of business transactions.
If you or a loved one need help writing a promissory note, or following up to get your payment from the promissory note, our Glendale business lawyers are here to help. We back all of our clients and we invite you to give us a toll free call at (310) 943-1171 to speak to our experienced business lawyers today.
KAASS LAW, 815 E Colorado St #220, Glendale, CA 91205, (310) 943-1171
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