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Example of a promissory note letter

A promissory note, otherwise referred to as a "note payable" or simply a "note," is a contract in which a borrower unconditionally promises to pay an amount of money to the lender, also referred to as the "payee."

Commonly, the note includes a fixed time limit for repayment as well as other specifics, such as the interest rate and frequency of payments, all of which are negotiable. A note can, however, simply require the repayment of the principle of the loan by a specific date.

Promissory Note Format: Top Section

Identify the contract with a headline in bold letters that states "Promissory Note" at the top of the page, followed by the address, city, state and Postcode where the note was signed. Follow this with the date the note was issued. Most promissory notes begin in capital letters with "FOR VALUE RECEIVED," followed by the name of the lender, or payee, the location at which the holder of the note is to be paid and the amount of the loan--spelt out and in numeric format.

The Terms

Spell out the specific terms of the note, including the interest rate on the loan and how it is calculated, the due date of the loan and the frequency of the payments.

Also indicate whether the payments will apply only to the interest or to the interest and principle of the loan. Interest-only loans often have a balloon payment due at the end date of the loan.

Additional Sections of the Note and the Signature

Additional clauses in the note may identify specific remedies related to the loan. These may include sections about security or collateral, waivers based on the holder's omissions or delay in acting, clarification of payments and any other specific refinement to the contract that the parties deem necessary. The lender must sign the note for it to be valid. For additional security, the lender usually requires that a notary witnesses and signs the document.