Create a Promissory Note with step-by-step instructions. With a Promissory Note, you can outline all of the terms and conditions of the loan, so be sure to get it. More Loan Promissory Note Form images.

1. Student Loan Promissory Note Form Pdf

Student Loan Promissory Note Form Pdf

. 1. The Definition: What is a Promissory Note? This is a written document that officially recognizes a legally binding relationship between two parties — a lender and a borrower. True to its name, it serves as a written and enforceable promise to pay a certain amount of money owed. Both parties understand that money is being borrowed and will be repaid at a future date. Promissory Note PDF Sample The sample promissory note below details an agreement between the borrower, ‘Jonathan M Hunt’, and the lender, ‘Erika T Haynes.’ Jonathan M Hunt agrees to pay the principal amount of $1,000 USD to Erika T Haynes under the terms specified.

What Should be Included? A simple note in writing should answer six basic questions: 1. Who is on the hook? (the “borrower” and the “lender”) The note should name who is receiving money or a line of credit (the “borrower”) and who will be repaid (the “lender”). Only the borrower must sign the note, but it is good practice to also have the lender’s signature. Always consult your local and state laws to verify signature and witness requirements. An example of “the Borrower” and “the Lender” section.

The lender may also be called: “payee”, “seller”, “issuer”, or “maker” 2. The Borrower may also be called: “payer” or “buyer” 2. How much needs to be paid back? (“principal” and “interest”) More sophisticated than an IOU, a note should clearly state the amount of money being borrowed (the “principal” amount).

Since $1 is worth more today than $1 tomorrow (i.e. The time value of money or TVM), an interest rate or amount is often charged on top of the principal. Otherwise, the lender is actually “losing” money by not charging interest and keeping the present value of money in hand. Payments on the note are usually applied first towards the interest with the remainder applied towards the principal amount. If you are unsure of how much interest rate to charge on a personal loan, visit the, the, or the for a comparison of current interest rates for personal loans. Amortization calculators are also available if you want to calculate the breakdown of principal and interest payments on a monthly basis for the lifetime of the loan.

An example of the Principal & Interest section 3. How will the money be repaid?

The note should clearly spell out how the money will be paid back to the lender. A note that comes with collateral is called “secured” because the lender is guaranteed fair repayment in the form of promised property, goods, or services. What happens if the money is not paid back? (“default” and “collection”) A note does not guarantee that the lender will be repaid, but a written note will be strong evidence if you need to appear before a judge.

If the borrower is unable to pay back the money and defaults on the note, the lender can place the note for collection. The borrower would be responsible for paying any reasonable costs associated with collection, including attorneys’ fees. A professional collection agency will charge the lender either a flat fee or a percentage of the outstanding debt, so it can sometimes be in the lender’s interest to negotiate a debt settlement agreement with the borrower and accept less than the original amount owed. An example of the Default & Collection section 6.

What other details should be included? A note may include these additional provisions:. Acceleration: can the lender ask the borrower to pay back asap?. Possible events of acceleration. if the borrower becomes bankrupt?. if the borrower fails to make payments?. if the borrower passes away (i.e.

if the borrower wants to pay off the note early?. if the borrower sales of a large or material portion of their assets?.

Amendment: any changes to the note must be in writing. Collateral: if the borrower defaults, the lender can keep the collateral property. Governing Law: which state’s laws apply. Joint and Several Liability: all co-borrowers share responsibility.

Late Charges: a penalty is charged if the amount is paid back late. Prepayment: the borrower can pay off the debt and interest early.

Right to Transfer: the lender can transfer the note to a different party. Learn how a note can As a reference, people often call this document by other names:. Negotiable Instrument (can be sold and used in business transactions). Commercial Papers (provide capital — aka money — to businesses).

Bank Note (in financial institutions). Mortgage Notes (in real estate).

Note Payable Form (in accounting). Private or Personal Loan. Intra-Family Loan. Promise to Pay.

Demand Note. Note When Should I Use One? Has a friend, relative or colleague borrowed money from you? Read our article outlining. Why Not Just Get a Loan from the Bank? A note is an alternative to a conventional bank loan.

The traditional lender is a bank, the usual borrower has excellent credit, and the normal collateral is a home or other piece of real estate. In contrast, this document allows anyone to be a lender, the borrower does not have to consider their credit score, and the collateral could be any object from fine jewelry to a fur coat. Instead of relying on a third party institution like a bank during a difficult borrowing environment, lenders and borrowers can directly negotiate with one another and think of creative solutions.

Lenders have the flexibility to arrange a unique set of repayment options and create their own “micro-loans” with whomever they prefer. Similarly, borrowers with less-than-stellar credit benefit from non-traditional lending instruments like a note. Although unable to qualify for a traditional mortgage or line of credit from the bank, a borrower can use this document to slowly get on back on the path of good credit, own a car, become a homeowner, or start a business. Promissory notes provide a paper trail to the IRS and serve as a written record of a legitimate monthly loan payment between the borrower and the lender in an intra-family loan. The 4 Types of Promissory Notes (Repayment Options) – Free Template Downloads We provide four different promissory note templates, each featuring a different type of loan stipulating the borrower’s payment and prepayment options. If you want to ‘secure’ your note, make sure you detail the type and amount of collateral that will be offered if the loan is not paid. Choose the template that makes the most sense for your situation, and either download it here,.

Installment Payments (secured & unsecured) Click to expand sample Installment payments are frequently used to buy expensive items like cars, boats, and appliances. Usually, the payments are made in equal monthly amounts, including interest, until the principal balance (the total amount borrowed) has been repaid. Borrowers can place a down payment on the installment loan to reduce the total amount of interest paid, if they can afford to do so. Feel free to use our free, downloadable template. Installment Payments with a Final Balloon Payment (secured & unsecured) Click to expand sample Balloon payments are frequently used in mortgage loans, and typically used by short-term borrowers because they feature lower interest rates than longer-term loans. Essentially, the borrower agrees to pay a low interest rate for a short amount of time, for example five years, and pays back only a fraction of the principal balance in that time.

At the end of the term, the borrower has the option to reset the loan (potentially at a higher interest rate) or pay off the massive remaining balance (the balloon), if they can afford it. Due on a Specific Date (secured & unsecured) Click to expand sample For smaller loan amounts, borrowers and lenders can agree to a specific payback date. Lenders will know exactly when they will be paid back, and borrowers will not have to worry about monthly payments. Instead, the borrower repays the entire amount of the loan – the principal plus any interest – on a specific date. Due on Demand (secured & unsecured) Click to expand sample Due on demand notes are usually used for loans between family and friends.

As there are no specific payment terms, these loans are sometimes called open-ended loans. Borrowers can pay back the note when they are financially stable. And lenders can be assured they will have an income source if necessary. If a note does not have any payment terms, it will be considered a due on demand note.

How to Enforce a Promissory Note If you’re in a situation where you have lent money through a promissory note and the borrower is delinquent, you may be wondering what actions you can take to enforce your note’s provisions. We highly recommend that you, especially if you have lent money through an unsecured note.

However, here is a brief overview: Secured A note that is secured means that the borrower has agreed to surrender their property as collateral if they fail to pay back the principal loan. This means that if you have lent money through a secured note, you have the legal right to take their property. This property can be either tangible (jewelry, cars, computers, etc.) or intangible (business, stocks, copyrights, patents, etc.). Unsecured An unsecured note features higher interest rates, which is favorable to the lender — but it also comes with risks. Retrieving money lent through an unsecured note can become a huge time waster, as well as a financial and emotional burden.

If you’re in this situation, we recommend the following process to get your money back:. Speak to the borrower in person. Draft a demand/notice letter. Send a follow up letter. Enlist a professional collection agency. File a petition or complaint in court.

Sell the note 4. What’s the difference between an IOU form, a Promissory Note, and a Loan Agreement? If you’re new to loans and finance, you may be confused about the differences between these different loan arrangements. We highly recommend. However, in general:.

An is more informal and flexible than a promissory note. In turn, a note is more informal and flexible than a loan agreement. is commonly used for more complex payment arrangements and often includes a recourse for the lender in case the borrower defaults or is unable to pay. For example, the lender has the right to foreclose on the property if the borrower is unable to repay the note. Here is a simple chart explaining the difference between an IOU, note, and loan. Comparison Table IOU Promissory Note Loan 1.

Promise to repay 1. Promise to repay 1.

Promise to repay 2. Steps for repayment 2. Steps for repayment 3. Timeline to repay 3. Timeline to repay 4. Legally binding 4. Legally binding 5.

Signature of borrower 5. Signature of borrower 6. Signature of lender 7. Repay in installments 8. Consequences of defaulting (i.e. Right foreclosure) 5.

FAQ Click on any question to expand the answer. Lender Questions. A Promissory Note is a legal document that sets out the details of a loan made between two people, a borrower and a lender.

The note clearly outlines the borrower’s promise to fully repay the lender within a specified amount of time. It includes all the terms and conditions of the loan transaction and ensures the parties have a thorough and complete written record of the deal and their intentions.

As such, the note should be finalized before any money changes hands. The document also acts as a formal record of the transaction.

This document can serve as a substitute for money and can be transferred between lenders. Another distinctive feature is that they can be transferred or treated as a “negotiable instrument.” If state requirements are properly satisfied, a note can be transferable or be exchanged between different parties, serving as a substitute for money. Imagine Betty borrows $100,000 from Larry to start her very own 3D printing studio. The note requires Betty to pay Larry $1,500 every month ($500 goes towards an annual 6% interest rate and $1000 goes towards the principal) for 100 months until the balance is paid off.

After 20 months of Betty diligently repaying, Larry actually would prefer to get his money back sooner so he can invest in an exciting dog walking business. Instead of simply waiting for the maturity date of the note to arrive, Larry could sell his note for the remaining balance ($80,000 in principal plus $40,000 in interest payments yet to come) at a discount (maybe $90,000) to his friend Lisa who is happy to patiently accept Betty’s $1,500 monthly payments for the next 80 months (and make $30,000)./tip Each state regulates whether notes are transferable so be sure to consult your local laws and include the precise language needed (i.e. The note is made “payable to order” or “payable to the bearer”). There may be situations where you want to clearly document whether the money being given should be treated as a gift or loan for accounting or tax purposes. For instance, the IRS allows you to give a gift of $14,000 to each of your very lucky family members for the year of 2015 without incurring gift tax consequences (i.e.

Annual gift tax exemption). Every year, for example, your grandparents could give a combined $28,000 to each of their grandchildren per year in an effort to reduce their estate taxes. Similarly, spouses (including same-sex spouses!) may gift one another $14,000 per year and claim the gift tax marital deduction. Transfers of money that fall under the annual gift tax exemption do not count towards your lifetime gift exemption of $5.45 million. Additionally, educational tuition expenses or medical expenses paid directly on behalf of someone do not count towards the $14,000 per year gift limit.

Because the IRS applies a hefty 40% gift and estate tax, refer to this February 2014 Schwab article or October 2014 Forbes article for a quick overview of estate planning tips and gift tax limits. Also be sure to visit the IRS for Frequently Asked Questions on Gift Taxes. If you have already maxed out your giving (i.e. The annual gift tax exemption of $14,000 per person per year), you can help a family member in need by turning to the de facto “family bank” and using a promissory note. An intra-family personal loan, however, is subject to the minimum IRS Applicable Federal Rates (“AFR rates”), which are published monthly.

Fortunately, the IRS required AFR interest rates are often below commercial mortgage rates, and all the interest and principal payments stay within the family. For comparison, consult the survey results of business lending terms released by the Federal Reserve in April 2016 or the average loan rates as of June 2016 developed by economists at the Research Division of the Federal Reserve Bank of St. As an example, here are the annual AFR rates or minimum allowable interest rate required for a family loan using this document: SHORT-TERM LOAN 9 YEARS JUNE 2016 0.64% 1.41% 2.24% MAY 2016 0.67% 1.43% 2.24% APRIL 2016 0.70% 1.45% 2.25% As you can guess, the IRS is trying to distinguish between a genuine loan between family members and a gift from one family member to another disguised as a loan. In order to satisfy the stringent IRS guidelines, intra-family loans should be clearly documented with formalities like a note. A March 2015 article by Investment News explains how this document can help families transfer wealth through more sophisticated intra-family loans. Borrower Questions.

A cosigner or guarantor is optional and protects the lender in case the borrower defaults. The lender may require a cosigner if the borrower is in questionable financial standing. The cosigner is someone who jointly signs the agreement with the borrower. In case the borrower defaults and cannot pay back the amount in full, the cosigner is responsible for paying back the lender for the amount due. The cosigner is usually someone in good financial standing or has excellent credit. Loan Payment Questions. The loan can be repaid in installments or at one time.

With an installment payment option (“Installment Payments”), the borrower repays the lender in a set number of installments over a set period of time as specified in the document. “Installment Payment with a Final Balloon Payment” is the same (repaying the loan in periodic installments), with the addition of one large “balloon” payment to be paid on the final due date. If the loan will be repaid at one time, it can be repaid either on a specified due date or “on demand” by the lender. With a “Due on Demand” payment option, the borrower repays the lender upon the request and at the demand of the lender.

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