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Most of us have written an informal IOU in the past when lending money to someone.
But if you are borrowing a large amount of money, such as a personal loan from family or friends, it is a good idea to write a promissory note just as if you were a bank lender. Writing a formal bill also benefits the borrower. Give them a written agreement outlining the cost of the loan, the repayment obligations and any collateral required.
Here’s what you need to know to write a personal loan bill.
What is a promissory note?
If you have ever borrowed money from a lender, chances are you have signed a promissory note.
The promissory note is a legally binding agreement that sets out all the details of the loan. It is a contract that includes the loan amount, the repayment obligations, the loan cost and what the lender can do in case the borrower does not repay the loan. When you sign a promissory note as a borrower, you agree to the terms of the loan and promise to repay it.
We are more familiar with the use of promissory notes when taking out a personal loan, a student loan or some other type of credit from a bank or lender. But sometimes we also lend money to friends and relatives. Often, we just lend them money with an informal or even verbal IOU.
But this can easily fail. What if your nephew skips the city with your $ 5,000, for example? Or what if your aunt dedicates her sweet time to repaying you when you could actually use the money now? Having a formal promissory note can help solve problems like this.
When should you use a promissory note?
You need to use a promissory note every time you lend money to someone you would like to get back. On the other hand, it is also a good idea to sign a promissory note whenever you borrow money from someone, where you might be upset if you do not return it.
Most people do not bother to sign bills for small amounts, such as spotting someone at dinner or filling up a gas tank. But if you are going to lend someone a few hundred or thousands of dollars, for example, you need to make sure you have a formal bill written so that everyone is on the same page.
How to write a stamp
In its most basic form, a promissory note should include the following:
- Name of lender and borrower
- Loan amount
- Either the loan is secured or unsecured
- If it is secured:
- What is the collateral?
- When can the lender take possession of the collateral (for example, after three months of lost payments? One year?)
- If it is secured:
- Amount and frequency of payment
- Payment deadline
- If the loan has co-signers, and if so, who
If you charge interest on the loan, you can easily calculate the payment amount using an online personal loan calculator. All you need to do is enter the loan amount, the duration (ie, how long it will take the borrower to repay it) and the interest rate.
Keep in mind that each state has its own laws regarding the maximum interest rate you can charge on a loan. These are known as usury laws and you should check them to make sure your loan interest rate is legal if you are charging interest.
Signature and save a promissory note
It is often a good idea to have a lawyer check your loan to make sure everything is in good condition and that you are not inadvertently breaking any law. However, the use of a lawyer is not necessary for the loan to be valid.
Once you have drawn up the bill, it is time for everyone to sign it: the lender, the borrower and the co-signer (if any). Again, seeking professional help such as notarizing signatures is a good idea but not required. If you have to go to court to sue someone, they will make sure that the other party can not claim that you forged their signature.
Make sure everyone who signed the promissory note receives a copy of their records. It is a good idea to make a separate copy and also keep it in a safe place, such as a locked file cabinet and / or on your computer hard drive.
How to make stamp changes
It does not matter if you need to make changes to your bill, but to do so, you must first obtain permission from everyone.
To customize the contract, it is usually easier to just write a second document as a modification of the original document. Note the changes, whether it is the interest rate, the payment amount or something else. Then ask everyone to sign this copy again and give everyone a copy of the amendment. That way, he would stay in court if he ever needed to.
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