Concise, Legal IOUs: Guidelines For Writing Promissory Notes

When a person or a company is in dire financial straits, the first option would be to borrow money from another person, company or financial institution (such as a bank). To make their transaction legal and valid, most borrowers create or fill out sufficient and well-encompassing promissory notes, or “notes payable.” Promissory notes are a legal type of IOU that state the terms and conditions of the loan agreed on both by the borrower and lender. These types of document are said to be extremely helpful in any financial transaction since they validate the deal, as well as set specific time goals for the amount to be returned. Usually promissory notes are given by the lender, but sometimes the borrower is the one who composes the promissory note.

Promissory notes are short, concise, but encompassing. This is probably why many people find themselves having a hard time creating their own promissory notes, even though it is a fairly easy task. If you're one of those individuals who has a hard time creating your own note, here are several promissory note guidelines that may be able to help you.

* Make sure that your promissory note is compliant to the state's governing law. Promissory note laws differ from state to state. When making your own promissory note, the loan's terms and conditions should meet that of the lender's state or residency (or, if the lender is a company, where it is designated).

* Don't confuse the principal loan amount from the interest rate's amount. These two are completely different. The principal loan is the original amount borrowed, while the interest rate refers to a percentage of the principal loan that is considered as a fee for using the money through the course of the loan's term. At the end of the maturity period, the interest rate is added to the principal loan, and their sum is the amount that should be paid by the borrower.

* The term and maturity date should be clearly stated in the promissory note. The term is the length or the time period in which the loan is effective. This could be for weeks, months, or even years, depending on the agreement between the borrower and the lender. When the end of the term is reached, or the maturity date, the loan has to be fully paid.

* The promissory note should not only include the borrower and lender's name, but also their contact details (telephone number and address), since these would be necessary if the payment is to be delivered. Also, make sure that the promissory note is signed. An unsigned note, no matter how concisely written, can be considered void.