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Q.What terms should be included in a Promissory Note?
A.Most promissory notes, like an I.O.U., say, "I promise to pay you $_____, plus interest of ___%" and then describe how and when the borrower is to make payments. For a promissory note to serve its purpose, the note should specify the following:
- Full name of the lender (called the “payee”);
- Full name, address, and telephone number of the borrower (called the “maker”);
- The date the money is being loaned;
- The amount of money being loaned;
- The interest rate being charged;
- The interest rate if the borrower defaults on payment, where applicable;
- The date by which loan should be repaid;
- How the loan is to be repaid;
- What happens if the loan is not repaid on time; and
- Signature of both parties and either a witness or notary
There any many different types of repayments schedules. Repayment may be due “on demand,” typically after a specified date. Repayment may be due on or before a specified date. Or, repayment may be due pursuant to a schedule of weekly or monthly payments.
If the borrower fails to repay the loan on time, then what? Is there a higher interest rate the borrower will be forced to pay? Will the borrower be responsible for any attorney’s fees or costs you incur trying to collect?
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