How Do You Create a Simple Promissory Note?


Quick Answer

A simple promissory note lists a promise to pay, the interest rate of the debt, the schedule for repayment and the consequences in the case of no repayment, explains About.com. However, the terms of a simple promissory note do change depending on the type of loan, says Nolo.

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How Do You Create a Simple Promissory Note?
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Full Answer

For loans secured with collateral, such as a car, a promissory note needs to explain that the lender has a security interest in the property until the loan is paid off, Nolo says. If a loan is unsecured, the promissory note should state that.

Four general types of loans exist, and a simple promissory note needs to explain which type of loan it covers, explains Nolo. In the first type, an installment loan with no interest, a borrower pays back the loan in equal monthly or yearly payments during an agreed-upon time. The second type is an installment loan with amortized interest. A borrower uses equal payments to pay back the loan, and each payment goes partly toward interest and partially toward principal. In the third type, a lump-sum payment, the borrower wipes out his debt plus interest in one single payment. In an interest-only loan, also called a balloon payment, a borrower pays interest charges monthly and then pays off the principal with one lump-sum payment.

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