A promissory note is a contract where one party makes an unconditional promise in writing to pay a sum of money to the other either at a fixed or determinable future time or on demand of the payee, under specific terms. Promissory note is often referred as note payable in accounting. Creating a well designed promissory note template will save you time and increase your efficiency.
Promissory Note and Personal Loan Note
A Promissory Note is required when you have to obtain loan or make promise for a financial transaction to a bank. A promissory note is not the same as an informal IOU. A personal IOU may state that a debt exists but lacks detail information such as repayment, interest etc. banks and other Commercial lending companies often require a promissory note before a loan can be approved.
Promissory Notes Types
Promissory notes can be both secured and unsecured. Secured notes are backed by some type of collateral such as your home, car etc. unsecured notes offer no collateral. since the unsecured notes is inherently riskier than the secured promissory notes, the borrowing interest rate is often higher. A typical promissory note is unsecured since it essential is a promise, This means that in the event that the borrower declares bankruptcy, the debt secured by the note will only be repaid after all the senor secured debt have been paid. before you lend the money to others through the promissory note, be sure to check the borrower’s financial situation, history, credit, competency and character. If you are lending money through an unsecured promissory note, a good rule of thumb is to never lend any more money than you are prepared to lose. If you are loaning a larger sum, consider consulting with a lawyer to make sure that your promissory note is bulletproof, and to determine how you might secure your note to ensure that you will eventually recover the loan.
There are differences between promissory notes and bill of exchange. Promissory note are characterized as follows:
** the maker of the promissory note is always the party primarily liable for payment, should the payee negotiate the note by endorsement, he them become liable as surety for the maker’s payment. Promissory note are not commonly used in business.
** The drawer and drawee are the same person, which means that there are only two original parties to the transaction in the case of a promissory note
Promissory Note Template
When design promissory note template or buy note template designed by others, you should make sure the promissory note template includes the following elements and information
The first part of promissory note template is about the details of all individuates related. In this section, it should include the names of all individuals and their contact information. and the date on which the promissory note was signed, as well as a description of the money or property being loaned out.
The next section of promissory note template is for note interest information: If the lender is charging interest on the promissory note, it should not just be factored into the pay schedule. Instead, say exactly how much interest is to be charged on a weekly, monthly or yearly basis, and how that interest is calculated into the principle.
The last part of promissory note template is for loan default issue. If payments aren’t made on time, you should state what proper actions will be taken. This is especially important if you are lending to someone who lives in another state.