Free Promissory Note Template

What Is a Promissory Note Template and When Do You Need One

A promissory note template is a pre-written legal document that records a formal promise to repay a loan. It names the borrower and lender, states the amount owed, sets out the repayment schedule, and specifies whether interest applies. Once both parties sign it, the note is legally enforceable.

People reach for a promissory note template whenever money changes hands informally but they still want a written record. The document turns a handshake loan into something both parties can point to if a disagreement arises later.

• Personal loans between friends or family members
• Small business loans from a private investor or silent partner
• Deferred payment arrangements between a contractor and a client
• Installment agreements for selling personal property such as a car or equipment
• Student loans made by a parent or family member outside the federal loan system

Key Parts Every Promissory Note Should Include

A legally sound promissory note must cover several specific elements. Leaving any of them out can make the note vague or unenforceable in court.

• Date: The date the note is signed, which establishes when the agreement takes effect
• Parties: Full legal names and addresses of both the borrower and the lender
• Principal amount: The exact dollar amount being lent, written out in figures
• Interest rate: Either zero (interest-free) or a stated annual percentage rate; the IRS requires a minimum rate on many family loans to avoid gift-tax issues
• Repayment schedule: Whether repayment is a single lump sum on a specific date or recurring installments (monthly, quarterly, etc.)
• Default clause: What happens if the borrower misses a payment, including any grace period
• Governing law: The state whose laws apply if there is a dispute
• Signatures: Both parties must sign and date; a witness or notarization strengthens enforceability

How to Fill Out and Use This Free Promissory Note Template

This template works in Google Docs, Microsoft Word, and any standard word processor. It also exports cleanly to PDF for printing and signing. Follow these steps to complete it correctly.

1. Open the template in Google Docs (make a copy to your Drive) or download the Word version
2. Enter today's date at the top and fill in both parties' full legal names and current mailing addresses
3. Write the loan amount in the Principal Amount section using the exact dollar figure
4. Decide whether interest applies. If yes, enter the annual percentage rate. For family loans, check the IRS Applicable Federal Rate (AFR) to avoid gift-tax complications
5. Choose a repayment structure: a single due date works for short-term loans; monthly installments work better for larger amounts
6. Fill in the default grace period (7 to 15 days is common for personal loans)
7. Enter the governing state (usually the state where the lender lives or where the business is registered)
8. Both parties sign and date the note. Keep one original copy each. For amounts over a few thousand dollars, consider having signatures notarized

Secured vs. Unsecured Promissory Notes

Not all promissory notes are the same. The most important distinction is whether the note is secured or unsecured, because that determines what the lender can do if the borrower does not repay.

An unsecured promissory note is backed only by the borrower's written promise to pay. If the borrower defaults, the lender's main remedy is to sue. This template defaults to an unsecured structure, which is appropriate for most personal and small-business loans between people who trust each other.

A secured promissory note is tied to specific collateral, such as a car, equipment, or real estate. If the borrower defaults, the lender can claim the collateral. To secure a note, you add a security agreement or deed of trust alongside the promissory note itself. For real estate, consult a local attorney because the process is state-specific.

Demand notes are a third type: instead of a fixed repayment date, repayment is due whenever the lender asks for it. These are less common in personal lending but appear in some investor arrangements.

Interest Rates and Legal Limits on Promissory Notes

You can make a promissory note interest-free, but if the loan is large or between family members, you should be aware of two rules.

First, if you lend money at a rate below the IRS Applicable Federal Rate (AFR), the IRS may treat the below-market interest as a taxable gift. The AFR changes monthly and is published by the IRS. For most small personal loans, staying at or above the AFR protects both parties from unexpected tax consequences.

Second, every US state has usury laws that cap the maximum interest rate on private loans. Charging above that cap makes the note unenforceable. Common state caps range from 10% to 25% annually. Check your state's usury limit before setting a rate.

For most informal loans between friends or family, charging zero or a low interest rate (at or above the AFR) is the simplest and most common approach.

Promissory Note Tips and Common Mistakes to Avoid

Even a simple promissory note can fail to protect you if it contains these common errors.

• Not signing the note: An unsigned promissory note is just a draft. Both parties must sign for it to be binding
• Using nicknames instead of legal names: Always use the borrower's and lender's full legal names exactly as they appear on government ID
• Leaving the repayment terms vague: Phrases like 'when I can' or 'soon' have no legal meaning. Use a specific date or a defined installment schedule
• Forgetting to specify what happens on default: Without a default clause, the lender has fewer clear options if payments stop
• Not keeping copies: Both parties should retain a signed original or high-quality scan. Store it somewhere accessible in case you need it years later
• Treating the document as a formality: Courts take promissory notes seriously. Fill it out accurately and completely, especially for loans over a few thousand dollars