How to Write a Promissory Note for a Loan

How to put a loan between friends, family, or a small business in writing, with the amount, interest, and payment dates.

A promissory note is a written promise to pay back money. It turns a handshake loan into something clear, so the person who borrowed and the person who lent both know exactly what was agreed. It also helps if memories fade or plans change.

Why write one down

Money between people you know can strain the friendship if the terms are fuzzy. When it is on paper, no one has to guess how much is owed, how much interest is charged, or when the next payment is due.

What goes in a promissory note

Who is lending and who is borrowing. Full names and addresses.
The amount. The exact sum that is being loaned.
The interest rate. It can be zero. If you charge interest, keep it reasonable, because every state limits how much interest a lender may charge.
How it is repaid. In one payment, or in equal monthly payments. Say the date of the first payment.
What happens if a payment is late. Many notes say that if a payment is more than a set number of days late, the lender may ask for the whole balance.
Paying early. Most notes let the borrower pay off the loan early with no penalty.
The date and both signatures.

A note is not the same as a gift

If you do not expect to be paid back, it is a gift, not a loan. A gift letter, not a promissory note, is the right paper. Be honest with yourself about which one it is, because a lender who later changes their mind cannot easily turn a gift into a loan.

Keeping track

Each person keeps a signed copy.
Write down every payment with the date and the amount. A simple receipt works well.
Pay by check or bank transfer so there is a record.

If the loan is large

For a large loan, you may want to ask for something of value as security, such as the title to a car. That needs a separate agreement. Think about how much you can afford to lose if the borrower cannot pay.