Monday, May 23, 2011

Promissory Note Template

A promissory note is also known as simply “note”. It is meant to provide specific details about the amount of original loan kwon as principal, repayment schedule and interest rate to be applied on original loan. A promissory note is basically a written promise signed by involved parties promising to pay a loan under specific terms and conditions.

Main contents of a promissory note will include:

· Names of involved parties

· Amount of obligation/principal amount

· Terms of repayment

· Interest rate

· Acceleration clause (optional), this clause will make the entire amount of the note due if a payment is not paid

It is important for business people to know about a promissory note considering state laws. There are different legal terms associated with promissory note. These legal terms include:

Promisor: Person making promise to pay a certain amount of money under certain conditions.

Promisee: Promisee is a person who will receive the payment. In context of a promissory note, promisee is a person who is entitled to receive certain amount of money on due date by promisor with interest.

Obligor: He is another person who binds himself to another contract or legal agreement. This term is alternatively used for promisor.

Obligee: This is another word used for promisee.

Consideration: Consideration is a legal term that means something in return for entering in contract. Consideration is one of the 9 essentials of a valid contract.

A person getting involved in a contract of promissory note needs to avoid certain pitfalls including:

Security for the Loan

A promissory note is basically an unsecured form of debt or obligation. This statement means that if promisor declares bankruptcy, debt against this loan will be paid after all secured loans are paid out of promisor’s property. If the loan under promissory note is too large then it is necessary for the promisee to get security for loan for instance a lien or mortgage against loan. If you are ready to lend money under unsecured promissory note then you should not lend more than what you are ready to lose. Consult a lawyer to confirm that your promissory note is bulletproof if you are going to lend large amount to determine possible ways for making your loan secured.

Unlawful Interest Rate

This term is commonly known as usury that means unlawfully higher interest charged on a loan under promissory note. You will have to face several consequences for entering into such illegal contract. Check your state laws for setting interest rates for a promissory note.

Late Fees

There are always certain limits on late fees that you can charge on a promissory note other than interest. Make sure to check local laws before you decide late fees for promissory note.

You may find specific promissory note forms for different states containing specific information like instructions, information about maximum limits for interest. You need to make sure that these forms and information are not out of date.

No comments: