You don’t have to have a legal degree to write basic contractual agreements, such as a promissory note. In fact, all you really need is a word processing program and the names of all parties involved. What most people don’t realize is that a contract doesn’t need to contain legalese in order to be binding in a court of law. It simply has to state the facts and include signatures from all named individuals.
The following elements are necessary when you write a promissory note from scratch:
1- Names & Contact Information
First, your promissory note should include the names of all individuals and their contact information, including physical addresses and phone numbers. This is to ensure that everyone can contact everyone else in case they have questions or comments regarding the transaction. Plus, it gives the lender a way to collect payment if it is late.
2- Date & Description
Next, you’ll want to write the date on which the promissory note was signed, as well as a description of the money or property being loaned out. For example, if you’re lending your best friend $500, you’d want to say that a loan was made in the amount of $500 on December 10, 2007. This ensures that everyone knows how much was given and when the money exchanged hands.
3- Interest
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. If you are not charging interest on the loan, make sure you say as much.
4- Late Penalties
Even if you’re lending to a friend, don’t leave late penalties out of the promissory note. If payments aren’t made on time, you are entitled to extra monies as a penalty, so specify that amount on the note itself. For example, you could say that the recipient will pay $50 on the first date the payment is late and $10 per day for every subsequent day it is late. Or, you can use percentages if you prefer.
5- Jurisdiction
This is especially important if you are lending to someone who lives in another state. Your promissory note should say that any legal disputes that arise from the loan will be handled in a certain city and state, under the laws of that city and state. This keeps you from having to travel across the country because the recipient wants to initiate a lawsuit there.
6- Payment Schedule
If you write a promissory note for a loan that needs to be repaid all in one lump sum, you can simply write that the due date is such-and-such date of such-and-such year. However, if the loan will be repaid in installments, you need to write out each day a payment is due, the amount, and a space for making it off as the loan is repaid.
