You and the borrower should agree on a plan for repaying the loan. For instance, you'll need to decide on the repayment terms and whether you'll require the loan to be secured.
Some of the different types of promissory notes include:
In an installment payment plan, the borrower makes equal monthly (or yearly) payments for a specified number of months (or years) until the loan is paid off.
If you charge interest, part of each payment goes toward interest, and the rest goes toward the principal. The loan and interest are fully paid when the borrower makes the last payment.
With many loans to friends and family members, the borrower pays off the loan in one payment at a specified future date. This payment includes the entire principal amount and the accrued interest, if any.
Again, consult online calculators to determine the total interest amount due under your particular plan.
Although rarely used in loans between family and friends, you can also structure a loan with a balloon payment. In this plan, the borrower makes equal monthly payments for a set amount of time. The payments can cover either interest and principal or interest only. These payments pay off some, but not all, of the loan.
Then, the borrower makes one final, large payment (called a "balloon payment"), which pays off the rest of the principal and the remaining interest.
In a secured loan, the borrower pledges property, like a car or house, as collateral to guarantee payment. If the borrower doesn't pay, the lender gets to take (or can foreclose on) the property.
Most personal loans are unsecured. However, if you want security for a personal loan, consider what property will secure the loan and what documents you'll need.
You can create your own promissory note using a template or an online fillable form.
For example, you can create your promissory note with Nolo's promissory note form. Choose from the various different types of loans accessible within this form:
Or, if you need more help, consult with a lawyer.
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