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Promissory Notes
A promissory note is used to document a loan. It is a legal IOU signed by the borrower that specifies the loan amount and the agreed-upon terms. GetFormsNow offers two kinds of promissory notes, one which specifies that the loan should be repaid on demand, and one which specifies that the loan should be repaid in periodic installment payments.
Promissory Note - Payment on Demand
This Promissory Note is used when the loan is due and immediately payable in full at any time upon the lender's demand.
Promissory Note - Installment Payments
This Promissory Note is used when the loan is to be repaid in periodic (usually monthly) installments.
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When is a promissory note used?
A promissory note is used to keep a record of the transaction when money is loaned from one party to another party. It is a written promise by a borrower to pay a specific amount of money to a lender. It is a legal "IOU." Often an interest rate will be set on the unpaid amount of the loan.
What is the difference between a promissory note on installment and a promissory note on demand?
An installment promissory note is used when the repayment of the loan is made on a periodic (usually monthly) basis, while a demand promissory note is used when the loan should be repaid in full upon the lender's demand. With an installment promissory note, the borrower will be able to spread the payments over a period of time.
What information should a promissory note contain?
- Repayment type. Examples are:
- Monthly payments (equal amount)
- Interest-only payments on a monthly basis with a final balloon payment
- Monthly payments (equal amount) with a final balloon payment
- Payment on demand
- Interest Rate - floating rate, adjustable rate or fixed rate
- Expected payment date
- Expected payment method
- The lender's right to demand full payment of the loan if any partial payments are past due
- Attorney's fees clause
- Printed name and signature of borrower
What other information can be included in a promissory note?
- Penalties and surcharges for late payment
- The lender's right to order payment to be made to a third party
Should I sign a promissory note when I borrow money from someone I know?
It is certainly a smart thing to do even if you do not feel comfortable or do not think it is necessary to do so. It is a good idea to keep a record of the details regarding repayment of any loan.
Who must sign the promissory note?
The promissory note must be signed by the borrower. Generally the lender is not required to sign it but may do so.
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