Get a promissory note for loans and repayments
A promissory note is a formal document that records a debt agreement between two parties. It serves as proof of the debt and a promise that the borrower will repay the loaned amount. Being legally binding, the it outlines the terms of repayment, giving both the borrower and the lender clarity regarding their rights and obligations.
For it to be valid, a promissory note must be properly drafted and signed, including the date and signatures of both parties. It should contain:
- Names and details of borrower and lender: Clearly identify who’s borrowing the money and who is lending it.
- Loan amount: Specify the exact amount of the loan.
- Repayment terms: Include details such as repayment schedule, interest rate, fees, and the total repayment period.
- Payment method: Indicate where and how payments should be made, such as a specific bank account.
- Consequences of non-payment: State the actions to be taken if the borrower fails to repay on time or defaults on the loan.
Types of promissory notes
There are two main types: non-negotiable debt instruments and negotiable debt instruments.
Non-negotiable debt instrument
These are commonly used for debts between private individuals. A non-negotiable debt instrument can’t be transferred or sold, meaning only the original lender can demand repayment.
Negotiable debt instrument
These can be transferred or sold to another party without the borrower’s consent. Negotiable debt instruments are considered financial instruments. They’re further divided into:
- Bearer bonds
The holder of the note can demand repayment simply by presenting it. - Order promissory notes
The new holder must present the note along with proof that it was transferred to them.
Difference between a general promissory note and one for unequal down payments
A general promissory note is a document used to formalize a debt agreement between two parties, regardless of the debt’s purpose. It acts as both a receipt and an agreement that the borrower will repay the loaned amount according to the terms outlined in the note.
A promissory note used to document unequal down payments is specifically designed to address disparities in contributions when purchasing a property with a partner. It’s often used alongside a cohabitation agreement or prenuptial agreement. If you and your partner co-own a property and contributed unequal amounts to the down payment, such a promissory note ensures that the partner who contributed more receives a proportionally larger share if the property is sold or in the event of a separation.
Why it’s important to document a debt or a loan
A promissory note provides both the lender and the borrower with a formal agreement that protects both parties. For the lender, it serves as security, ensuring that the loan will be repaid under the agreed-upon terms. For the borrower, it clarifies the expectations and outlines the consequences if the loan isn’t repaid on time. In situations involving large sums of money or when a loan is issued on someone else’s behalf, having a promissory note is especially crucial.
What we help with regarding promissory notes
Legal advice
We offer expert advice to help you choose the right type of promissory note for your needs.
Drafting the documents
We will draft a clear and accurate promissory note that meets all legal requirements and safeguards your interests.
Review and follow-up
We review existing promissory notes and provide advice on handling debts or claims, including those in legal disputes.
Get legal help today
Do you need help with a debt? You can always get in contact with our lawyers within just 24 hours when you need quick answers to your questions. Or you can email or call us whenever you need to hire a lawyer for legal assistance.
FAQ about promissory notes
Do I always need a promissory note?
No, but it’s strongly recommended, especially for larger sums. It provides a clear, enforceable agreement for both parties.
What’s the difference between a non-negotiable debt instrument and a negotiable debt instrument?
A non-negotiable debt instrument can’t be transferred to another party, while a negotiable one can be sold or assigned and is treated as a financial instrument.
What happens if the borrower doesn’t repay?
If payments are missed or delayed, the lender can take legal action to recover the debt. These consequences should be clearly outlined in the promissory note.
