Promissory Note Template – Secured and Unsecured
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Get the fillable document, the editable version, and an action checklist:
The bottom line:
- A promissory note turns a loan into an enforceable obligation. It is the borrower’s written promise to repay, with the amount, interest, schedule, and what happens on default. You can copy a complete one from this page.
- Secured or unsecured is the key choice. Unsecured relies on the borrower’s promise; secured is backed by collateral you can claim if they default. Larger loans should be secured.
- Two numbers protect you from trouble: Stay under your state’s legal interest cap, and on loans over $10,000 charge at least the IRS Applicable Federal Rate, or the IRS may tax you on interest you never collected.
- Always include an acceleration clause. Without it, you can only sue for missed payments one at a time instead of the whole balance.
Download Your Free Promissory Note Template
Lending money, or borrowing it? Whether it is a personal loan to a friend, seller financing for a car, or a loan between business partners, a promissory note turns a verbal promise into an obligation a court will enforce. Download our free template with secured and unsecured options, or copy the full note from this page below.
Prefer a guided, fill-in-the-blank version that adapts to your state? LawDepot walks you through a promissory note question by question.
What’s included in this free download:
- Secured promissory note (with collateral provisions)
- Unsecured promissory note (no collateral)
- Four repayment structures: Installment, lump sum, interest-only, and on demand
- Amortization payment schedule and a payment log
- Co-signer/guarantor and default/acceleration provisions
- Compatible with all 50 states
What Is a Promissory Note?
A promissory note is a written, legally binding promise by one party (the borrower, or “maker”) to pay a set sum to another (the lender, or “payee”) on agreed terms. It documents the loan amount, the interest rate, the repayment schedule, and what happens on default.
Unlike a casual IOU, which only acknowledges that a debt exists, a promissory note spells out exactly how and when the debt is repaid, what interest applies, and the consequences of not paying. That detail is what makes it enforceable.
| Document | Enforceability | Detail level | Best for |
|---|---|---|---|
| Verbal promise | Very weak, hard to prove | None | Never rely on this |
| IOU | Weak, acknowledges debt only | Minimal | Informal small amounts |
| Promissory note | Strong, fully enforceable | Complete terms | Most loans |
| Loan agreement | Strongest, bilateral contract | Extensive | Complex or large loans |
The distinction that matters: A promissory note is a one-way promise (only the borrower signs, promising to pay). A loan agreement is a two-way contract where the lender also makes commitments. For most personal and small-business loans, a promissory note is enough.
When Do You Need a Promissory Note? (9 Scenarios)
Personal Loans
1. Lending to family or friends. Money is the fastest way to damage a relationship. A note sets clear expectations both sides agreed to. For a family loan with a payment schedule, our family loan promissory note with an amortization schedule is built for exactly that.
2. Borrowing from someone. Protect yourself from a later claim that the amount or terms were different, or that the “loan” was a gift (which carries its own tax questions).
3. Settling a debt in installments. When you owe money and cannot pay all at once, a note records the agreed payment plan.
Business & Real Estate
4. Seller financing. When a seller of a business, property, or vehicle takes payments over time instead of full payment upfront.
5. Loans involving a business. When an owner loans money to their LLC (or the reverse), a note distinguishes the loan from a capital contribution.
6. Down-payment help. When a relative helps with a down payment, mortgage lenders want to know whether it is a gift or a loan. A note makes it clear.
7. Employee advances. When an employer advances pay or lends funds to an employee.
Specific Transactions
8. Vehicle seller financing. Selling a car on installments, paired with a lien on the title and a bill of sale.
9. Structured repayment of any debt where both sides want a clear, enforceable schedule rather than a handshake.
Free Promissory Note Template (Copy & Paste)
Here is a complete unsecured installment promissory note you can copy from the page. It is the most common type: Fixed monthly payments with interest. Replace every bracketed field. To make it secured, complete Section 8 and pair it with a security agreement (and perfect the lien, as explained below).
PROMISSORY NOTE
[CITY, STATE] | Date: [DATE] | Principal Amount: $[AMOUNT]
1. Promise to Pay. For value received, [BORROWER FULL NAME] (“Borrower”) promises to pay to [LENDER FULL NAME] (“Lender”) the principal sum of $[AMOUNT], together with interest as set out below.
2. Interest. Interest accrues on the unpaid principal at [__]% per year. (Set the rate at or above the current IRS Applicable Federal Rate and below your state’s legal interest cap.)
3. Repayment. Borrower will repay this Note in [NUMBER] equal monthly installments of $[PAYMENT], beginning on [FIRST PAYMENT DATE] and continuing on the [DAY] of each month until paid in full. The entire balance is due no later than [MATURITY DATE].
4. Prepayment. Borrower may prepay all or part of the principal at any time without penalty. Prepayments apply to principal.
5. Late Payment. If a payment is more than [__] days late, Borrower will pay a late fee of [$ AMOUNT or __%].
6. Default and Acceleration. If Borrower misses a payment and does not cure it within [__] days after written notice, the entire unpaid balance becomes immediately due and payable at Lender’s option.
7. Collection Costs. Borrower will pay Lender’s reasonable costs of collection, including court costs and attorney fees to the extent allowed by law.
8. Security. This Note is [unsecured] OR [secured by the collateral described in a separate Security Agreement dated [DATE]]. For a secured loan, perfect the lien: record a deed of trust for real estate, note the lien on the vehicle title, or file a UCC-1 for business assets.
9. Waiver. Borrower waives presentment, demand, and notice of dishonor to the extent allowed by law.
10. Governing Law. This Note is governed by the laws of the State of [STATE].
Borrower Signature: __________________ Print Name: [BORROWER] Date: ______
[Co-signer/Guarantor Signature: __________________ Print Name: [NAME] Date: ______]
The lender does not usually sign a promissory note; it is a one-way promise by the borrower. This template is general information, not legal advice.
Secured vs. Unsecured: Which Do You Need?
This is the most important decision when you write the note.
Unsecured Promissory Note
No collateral backs the loan. The lender relies on the borrower’s promise and creditworthiness.
Use it for:
- Small personal loans (roughly $500 to $5,000)
- Loans to trusted family or friends
- Short-term loans you expect back quickly.
The risk: If the borrower does not pay, your only remedy is to sue, and a judgment against someone with no assets can be hard to collect.
Secured Promissory Note
Specific property (collateral) backs the loan. If the borrower defaults, the lender can claim the collateral.
Use it for:
- Larger loans
- Vehicle seller financing (the car is collateral)
- Real estate loans (secured by a deed of trust or mortgage)
- Business equipment loans
To secure a loan properly you need both the promissory note (the promise to pay) and a security agreement (the pledge of collateral), and then you must perfect the lien:
- Real estate: Record a deed of trust or mortgage with the county.
- Vehicles: Note the lien on the title with the DMV.
- Business equipment: File a UCC-1 financing statement with the Secretary of State.
A secured note means nothing if you skip this step. Perfecting the lien is what gives you priority over other creditors.
Repayment Structures (4 Options in Our Template)
Option A: Installment Payments (Most Common)
Equal payments of principal plus interest over a fixed period, like a car loan.
Example: A $10,000 loan at 6% over 24 monthly payments works out to about $443.21 per month. The download includes an amortization schedule showing how each payment splits between principal and interest.
Option B: Lump Sum (Balloon)
The full principal plus interest is due on one future date, with no payments before then.
Example: A $5,000 loan at 5% simple interest for one year comes to $5,250 at maturity.
The risk: If the borrower cannot pay the balloon, the whole amount is in default at once. Consider a clause that converts it to installments as a backstop.
Option C: Interest-Only with Balloon
The borrower pays only interest each month, then the full principal at the end.
Example: A $20,000 loan at 7% is about $116.67 per month in interest for the term, then $20,000 due at the end. Useful when the borrower needs low payments now and expects a lump sum later.
Option D: On Demand
No fixed schedule. The full amount is due whenever the lender demands it, usually after a short written notice period. Common for informal family loans, but it gives the borrower little certainty, so use it with people you trust.
What’s Inside the Template (Section by Section)
Principal terms: Date, parties, principal amount (in numbers and words), interest rate, payment structure, and maturity date.
Interest provisions: Fixed or variable, simple or compound, a default rate that applies after default (often a few points above the note rate), and a usury savings clause (more on that next).
Payment terms: Amount, due date, grace period, late fee, how payments apply (interest first, then principal), and whether prepayment is allowed without penalty.
Security (secured notes): A description of the collateral, the borrower’s warranty that they own it, insurance requirements, and authorization to file the lien.
Default and acceleration: What counts as default and the acceleration clause that makes the whole balance due at once. Include a short cure period after written notice.
Collection and remedies: Who pays collection costs and attorney fees, which court has jurisdiction, and a waiver of formal presentment.
Co-signer/guarantor (optional): If the borrower’s credit is thin, a co-signer who is jointly and severally liable for the full amount.
Payment log: A simple table to track each payment’s date, amount, split between principal and interest, and the running balance.
Stay Under Your State’s Legal Interest Cap
Every state sets a maximum interest rate you can legally charge on a personal loan. That ceiling is called the usury limit, the legal term for charging more interest than the law allows. Go over it and the loan can be voided, the interest forfeited, and in some states there are criminal penalties. The rates below are a starting point; these laws are full of exceptions (licensed lenders, business loans, and written agreements often have different ceilings), so confirm your state’s current rule before you set a rate.
| State | General cap (non-exempt loans) | Note |
|---|---|---|
| California | 10% (personal loans) | Different rules for licensed lenders and some business loans |
| New York | 16% civil | Above 25% can be criminal usury |
| Texas | 10% default, up to 18% by written agreement | Several exceptions |
| Florida | 18% on loans under $500,000 | Above 25% can be criminal usury |
| Illinois | 9% by written contract | Many exceptions |
Our template includes a usury savings clause: If the rate somehow exceeds the legal limit, it automatically drops to the maximum allowed rather than voiding the whole note.
How to Fill Out Your Promissory Note (Step-by-Step)
Step 1: Agree on the Structure
Settle the basics first: How much is borrowed, what interest rate is fair, how it is repaid, over what period, and whether there is collateral.
Step 2: Check Two Rate Limits
Two numbers keep you out of trouble. The first is your state’s legal interest cap (the usury limit, above). The second is the IRS Applicable Federal Rate (AFR). On a loan over $10,000, if you charge interest below the AFR, the IRS can “impute” interest under 26 U.S.C. §7872, meaning the lender is taxed on interest they never actually received. The AFR changes every month and comes in short-term (3 years or less), mid-term (over 3 to 9 years), and long-term (over 9 years) versions. Look up the current month’s rate on the IRS Applicable Federal Rates page and set your rate at or above it. (Gift loans between individuals of $10,000 or less are generally exempt, unless the money is used to buy income-producing assets.)
Step 3: Fill In the Parties
Use full legal names as they appear on government ID and current addresses. If a business is the borrower, use the entity’s legal name.
Step 4: Enter the Financial Terms
Principal in numbers and words (“$10,000 (Ten Thousand Dollars)”), the annual interest rate, the monthly payment (use an amortization calculator), the first payment and maturity dates, and the late fee and grace period.
Step 5: Choose Secured or Unsecured
If secured, describe the collateral specifically (VIN for vehicles, address for real estate, serial numbers for equipment), decide whether you will file a lien, deed of trust, or UCC-1, and add insurance requirements.
Step 6: Add a Co-Signer if Needed
If repayment is uncertain, a co-signer provides backup. They should sign in the guarantor section and understand they are equally liable for the full amount.
Step 7: Sign and Secure
The borrower signs (and the co-signer, if any). The lender usually does not sign. Notarization is worth it on larger loans. If the note is secured, file the lien documents right away, and keep the original in a safe place.
Promissory Note vs. Loan Agreement: When to Upgrade
| Feature | Promissory note | Full loan agreement |
|---|---|---|
| Who signs | Borrower only | Both parties |
| Complexity | Moderate | High |
| Best for | Loans under $50,000 | Loans over $50,000 |
| Disbursement terms | Not detailed | Conditions for funding |
| Financial covenants | Rarely included | Common |
Upgrade to a loan agreement when the loan is large, there are conditions before funding, the lender needs ongoing financial reporting, or the loan is part of a bigger business deal.
Free Template vs. Online Builder vs. Attorney
Our free template covers most everyday loans. Here is the honest trade-off.
| Option | Typical cost | Best for | Trade-off |
|---|---|---|---|
| Free template (like ours) | $0 | Personal, family, and small-business loans; simple secured loans | You handle the state and AFR checks yourself |
| Online builder (e.g., LawDepot) | Subscription or per-document | Owners who want guided questions and state-specific language | Ongoing cost; still not tailored legal advice |
| Note drafted by an attorney | ~$300 to $1,500 | Real estate financing, loans over $50,000, complex collateral, convertible notes | Highest cost; longer turnaround |
For a standard personal or small-business loan, a properly completed template does the job. Hire an attorney when real estate, large amounts, complex security, or startup convertible notes are involved.
Want state-specific language and the interest and repayment math handled for you? LawDepot’s promissory note builder walks you through it.
Common Promissory Note Mistakes
Mistake 1: No Written Note at All
Trusting a verbal promise is the most common error. Without a written note, proving the loan existed, let alone its terms, is very hard.
Mistake 2: Charging Interest Above the Legal Limit
Going over your state’s interest cap can void the loan, forfeit the interest, and create criminal liability in some states. Check the limit before you set a rate.
Mistake 3: No Acceleration Clause
Without acceleration, if the borrower stops paying you can only sue for each missed payment, not the whole balance. Always include it.
Mistake 4: Not Perfecting the Security Interest
A “secured” note is empty if you do not file the lien. Note the lien on the title, record the deed of trust, or file the UCC-1, or you are effectively unsecured.
Mistake 5: Below-AFR Interest on Family Loans Over $10,000
The IRS can impute interest at the AFR even if you charged less, so the lender owes tax on interest they never received. Either charge at least the AFR or keep a gift loan at $10,000 or under.
Frequently Asked Questions
Is a promissory note legally binding without a notary?
Yes. A promissory note is a contract, and contracts are valid with signatures alone in most cases. Notarization adds evidentiary weight by proving the borrower actually signed, but it is not required in most states for the note to be enforceable.
Can I charge interest on a personal loan?
Yes, up to your state’s legal interest cap (the usury limit). For loans over $10,000, the IRS expects you to charge at least the Applicable Federal Rate. If you charge less, including 0%, the IRS can impute interest income to the lender anyway.
What happens if the borrower dies?
The debt becomes an obligation of the borrower’s estate, paid from estate assets before anything passes to heirs. If the estate is short, the debt may be partly or fully uncollectible, unless there is a co-signer or surviving collateral.
Can I sell or transfer a promissory note?
Yes. Promissory notes are negotiable instruments and can be sold, assigned, or transferred, with the new holder stepping into the lender’s shoes. This is routine with real estate mortgage notes.
What’s the difference between a promissory note and an IOU?
An IOU only acknowledges a debt (“I owe you $500”). A promissory note adds the repayment schedule, interest, default consequences, and other enforceable terms, which is why courts prefer it.
How do I enforce a promissory note if the borrower defaults?
Send written notice of default with a cure period. If unsecured, sue for the balance; if secured, claim the collateral under your state’s procedures. After a judgment, you can collect through wage garnishment, a bank levy, or a property lien. For smaller amounts, small claims court is often the fastest route.
Download Your Free Promissory Note Template
Document every loan properly to protect your money and your relationships. Copy the note above, or download our secured and unsecured templates with all four repayment structures.
Prefer a guided experience? LawDepot’s promissory note builder handles the interest, repayment, and security language for your state.
Available formats:
- Microsoft Word (.docx), fully editable
- PDF with fillable fields
- Google Docs for cloud editing
Sources & References
This guide is fact-checked against the following official and authoritative sources:
- Cornell LII — Promissory Note
- Cornell LII — UCC Article 3 (Negotiable Instruments)
- IRS — Applicable Federal Rates (AFR)
- 26 U.S.C. §7872 — Below-Market Loans
Fact-checked: July 2026 · ClearLegalTips editorial team. This is legal information, not legal advice.
ClearLegalTips is an independent publisher of plain-English legal guides, free document templates, and cost calculators for common U.S. legal tasks. Every article is reviewed by founder and editor Fatih Öztürk and fact-checked against official sources: statutes, court fee schedules, and government filing pages. Not a law firm; nothing here is legal advice.
