To get a promissory note, you have three practical options: download a template from an online legal service like LegalZoom or Rocket Lawyer, use a free template you find online, or hire an attorney to draft one. No government office issues promissory notes. It’s a private document between borrower and lender, so what matters more than where the paper comes from is what’s written on it.
The Three Places to Get One
Online legal document services are the middle path. Platforms like LegalZoom and Rocket Lawyer sell attorney-reviewed templates with guided questionnaires that walk you through each field. Prices generally run $30 to $100. For a straightforward loan between friends, family, or small business partners, that’s usually enough.
Free templates are everywhere. Some are perfectly serviceable. Others are incomplete or out of date. If you use one, compare it against the checklist further down and make sure nothing essential is missing. A template that leaves out a default or acceleration clause can leave a lender with almost no leverage if the borrower stops paying.
Hiring an attorney makes sense once the stakes rise. For loans above $10,000, notes involving collateral like real estate or business equipment, or arrangements with multiple parties, a lawyer can tailor the terms to your situation, check your state’s usury limits, and add protections generic forms skip. Expect to pay $200 to $1,000 depending on complexity.
All three routes produce the same document in the end. The one that fits you depends on the loan amount, whether there’s collateral, and how much you want to spend to shift drafting risk onto someone else.
What the Note Has to Include
Under the Uniform Commercial Code, a promissory note qualifies as a negotiable instrument when it contains an unconditional promise to pay a fixed amount of money, is payable on demand or at a definite time, and is payable to a specific person or to the bearer of the note.1Legal Information Institute. UCC 3-104 – Negotiable Instrument That’s the legal minimum. A useful note goes further:
- Names and addresses of the borrower (the “maker”) and the lender (the “payee”).
- The principal amount, written in both numbers and words to prevent ambiguity.
- The annual interest rate and how interest is calculated (simple or compound, daily or monthly accrual). If the loan is interest-free, say so explicitly.
- Repayment terms: whether payments are monthly, quarterly, a lump sum, or on demand, with each payment’s due date and amount.
- A maturity date when the full balance must be paid off.
- Late fee terms, including any grace period and the dollar amount or percentage charged.
- A default and acceleration clause spelling out what counts as a default and whether the lender can call the entire remaining balance due immediately.
- Prepayment terms, so both sides know whether the borrower can pay early without penalty.
- Governing law: which state’s rules apply in a dispute.
- The borrower’s signature. The note isn’t enforceable without it. The lender’s signature isn’t legally required, but including it shows both sides agreed to the terms.
Leaving any of these out doesn’t automatically void the note, but each gap makes enforcement harder. The default and acceleration clauses matter most in practice. Without an acceleration clause, a lender whose borrower falls behind can only sue for the specific payments that are overdue, not the full remaining balance.
Picking a Payment Structure
Repayment terms are the heart of the note, and you have three basic shapes to choose from.
An installment note breaks the loan into regular payments over a set period. Each payment may cover principal only, interest only, or both. It’s the most common structure for personal and business loans because it gives the borrower a predictable schedule and the lender a steady stream of payments. A five-year, $20,000 loan at 5% interest with monthly payments is a typical example.
A lump-sum note, sometimes called a balloon note, requires the borrower to repay the entire principal plus accrued interest in a single payment on the maturity date. These fit short-term bridge financing. The risk is obvious: if the borrower can’t produce the full amount on the due date, the lender is chasing a default.
A demand note has no fixed repayment schedule. The lender can request repayment at any time, and the borrower then has a set window, often 30 to 90 days, to pay. Demand notes are common in family loans and informal business lending because they feel less rigid. That flexibility runs both ways. The lender can call the loan without warning, and the borrower has no guaranteed timeline.
For most private loans, an installment note with clear monthly payments strikes the best balance between structure and simplicity.
Setting the Interest Rate
Every state has usury laws capping the maximum interest rate a private lender can charge. The caps vary widely, and the penalties for exceeding them range from forfeiting the excess interest to having the entire note declared void. Look up your state’s usury limit before settling on a rate. Charging 25% on a personal loan might feel reasonable to both parties at signing, but if your state caps private lending at 10%, the note could be unenforceable.
The floor matters too. If you lend money to a family member or friend at zero percent or at a rate below the IRS Applicable Federal Rate, the IRS may treat the difference as imputed interest, meaning the lender owes taxes on interest income they never actually received.2Office of the Law Revision Counsel. 26 USC 7872 – Treatment of Loans With Below-Market Interest Rates The safe move is to charge at least the AFR, which the IRS publishes monthly. For March 2026, those rates are 3.59% (short-term, for loans up to three years), 3.93% (mid-term, three to nine years), and 4.72% (long-term, over nine years) with annual compounding.3Internal Revenue Service. Rev. Rul. 2026-6
Two carve-outs limit how far this reaches into small family loans. Loans of $10,000 or less between individuals are exempt from the imputed interest rules entirely. For loans between $10,000 and $100,000, the imputed interest is capped at the borrower’s net investment income for the year; if they have none, the imputed interest is treated as zero.4Office of the Law Revision Counsel. 26 USC 7872 – Treatment of Loans With Below-Market Interest Rates
Add a late fee provision while you’re at it. Most states don’t cap late fees on private loans, but the fee has to be reasonable. A common setup is a grace period of five to seven days followed by a flat fee or a percentage of the overdue payment, typically 5% of the missed amount.
Signing, Witnesses, and Notarization
The borrower’s signature is the one requirement you can’t skip. Without it, the note isn’t enforceable. Everything else in the signing process is optional but can save trouble later.
One or two disinterested witnesses at the signing strengthen the note’s credibility if the borrower later claims they never signed or were pressured into it. A witness should have no financial stake in the loan. Most states don’t require witnesses for a promissory note to be valid, but including them costs nothing.
Notarization goes a step further. A notary public verifies each signer’s identity and confirms they’re signing voluntarily. It isn’t legally required for most promissory notes, but it’s worth doing for any loan above a few thousand dollars or any note secured by real property. Some recording offices require notarized documents before they’ll accept a mortgage or deed of trust for filing.
Once everyone signs, give each party a copy and keep the original somewhere secure, like a safe deposit box or fireproof safe. The original note is the primary evidence of the debt. Losing it makes enforcement significantly harder.
If the loan is backed by collateral, the promissory note isn’t the whole document set. Real estate collateral needs a separate mortgage or deed of trust, and personal property like a vehicle or equipment needs a UCC-1 financing statement filed with the state to protect the lender’s claim against other creditors. Those are separate steps beyond drafting the note itself.
If the Borrower Defaults
This is where drafting quality shows. A well-written default clause spells out exactly what triggers a default (missed payment, bankruptcy filing, sale of collateral) and what the lender can do about it.
If the note includes an acceleration clause, the lender can declare the entire remaining balance due immediately after a default rather than waiting out the original schedule. This is standard in professionally drafted notes and is the single provision most worth checking on a free template. Without it, the lender is stuck suing over individual missed payments as they come due.
For unsecured notes, the main remedy is a lawsuit. Small claims court handles smaller amounts, with dollar limits that vary by state. Larger notes require a higher court and usually an attorney. A signed, well-documented promissory note makes that litigation fairly straightforward because the terms and the debt are already in writing.
Timing matters. Under the Uniform Commercial Code, a lender has six years from a missed due date to file suit on an installment note, and six years from the date of demand on a demand note. If a demand note sits untouched with no payments and no demand for ten continuous years, the right to enforce it expires entirely.5Legal Information Institute. UCC 3-118 – Statute of Limitations Some states have adopted shorter periods, so check your state’s version of the UCC. Sitting on a defaulted note without acting is one of the most common and most avoidable mistakes a lender can make.