{"id":5279,"date":"2025-03-19T16:38:00","date_gmt":"2025-03-19T21:38:00","guid":{"rendered":"https:\/\/content.findlaw-admin.com\/ability-law\/smallbusiness\/starting-a-business\/how-to-make-a-free-promissory-note.html"},"modified":"2026-05-15T08:47:00","modified_gmt":"2026-05-15T13:47:00","slug":"how-to-make-a-free-promissory-note","status":"publish","type":"page","link":"https:\/\/www.findlaw.com\/smallbusiness\/starting-a-business\/how-to-make-a-free-promissory-note.html","title":{"rendered":"How To Make a Free Promissory Note"},"content":{"rendered":"\n
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\n By Catherine Hodder, Esq.<\/a> | Legally reviewed by Jordan Walker, J.D.<\/a>\n | Last reviewed\n
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This article has been written and reviewed for legal accuracy, clarity, and style by FindLaw\u2019s team of legal writers and attorneys<\/a> and in accordance with our editorial standards<\/a>.<\/em><\/p>\n\n <\/div>\n <\/details>\n\n

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The last updated date refers to the last time this article was reviewed by FindLaw or one of our contributing authors<\/a>. We make every effort to keep our articles updated. For information regarding a specific legal issue affecting you, please contact an attorney in your area<\/a>.<\/em><\/p>\n\n <\/div>\n <\/details>\n<\/section>\n\n\n

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Making a promissory note involves creating a formal loan agreement between a borrower and lender, outlining specific terms of the loan like the loan amount, due date, installment repayment schedule, interest rate, and late payment fees.<\/p>\n\n <\/div>\n\n\n

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\n What To Expect in This Article\n <\/h3>\n
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This article explains what a promissory note is, the different types of promissory notes, what you should include in a promissory note, and how to create your own using FindLaw’s free promissory note template.<\/p>\n\n <\/div>\n \n Jump to Free Promissory Note Template<\/span>\n <\/i>\n <\/a>\n <\/div>\n <\/div>\n <\/div>\n<\/div>\n\n\n

What Is a Promissory Note?<\/h2>\n

A promissory note<\/a> is a written promise to pay back a loan. The purpose of a promissory note is to document an otherwise informal IOU<\/span> so the loan doesn\u2019t have issues with enforceability in the event of default<\/span>.<\/p>\n

For example, you can loan a family member<\/span> $5,000 for a down payment on a house. You can have the borrower<\/span> promise to pay you back, or you can have them sign a promissory note. If the borrower<\/span> defaults<\/span>, it is harder to enforce an oral promise to pay. If you need to take legal action<\/span> for nonpayment, you should have the terms of the loan formalized in a written agreement<\/span>.<\/p>\n

There are many ways to use a promissory note, such as loaning money to a family member<\/span> or friend for a small business<\/span> startup (i.e., a business loan<\/span>) or giving a personal loan to someone to help buy a car, purchase real estate<\/span>, or pay for college.<\/p>\n

Types of Promissory Notes<\/span><\/h2>\n

There are two types of promissory notes<\/span>: secured and unsecured. One has collateral to recover against the loan amount<\/span>, while the other does not.<\/p>\n

What Is a Secured Promissory Note<\/span>?<\/h3>\n

A secured promissory note<\/span> has property to secure the loan (called \u201ccollateral\u201d). If the loan is not paid back, the lender<\/span> has rights to the property for the amount of the loan. There are different ways to secure promissory notes with property. For example, if you lent money to someone for a car purchase, you could put a lien on the car title. If the borrower<\/span> did not pay back the loan, they could not sell the car without your signature.<\/p>\n

A typical secured promissory note<\/span> is a mortgage between two parties. The lender<\/span> lends the money to the borrower<\/span> but keeps a lien the property as security until the loan is paid. If the loan is not paid, the lender<\/span> must foreclose on the property through a judicial process.<\/p>\n

A mortgage is different from a deed of trust. In real estate<\/span> transactions, a \u201cdeed of trust\u201d is where the parties agree to have a third party (the \u201ctrustee\u201d) hold the property until the loan is repaid.<\/p>\n

What Is an Unsecured Promissory Note<\/span>?<\/h3>\n

An unsecured promissory note<\/span> is a promissory note that does not have property to back up the loan. You still have a written promise that is enforceable if the borrower<\/span> defaults<\/span>. However, you must file a legal action<\/span> to recover the amount of money owed. You do not have a claim to the property.<\/p>\n

What Does a Promissory Note Include?\u00a0<\/h2>\n

When lending (or borrowing money<\/span>) with a promissory note, you should know some standard terms of a loan.<\/p>\n