Perhaps you have a customer who needs to pay you in a few installments, or a vendor who will let you pay for goods over a period of time longer than the normal 60 day invoice period. Or perhaps you are advancing pay to an employee or you’re loaning your child money to pay for school or buy a house. Even if you’re helping a friend pay off debts or buy a car, you can benefit from writing a legal promissory note, a document that puts the loan in writing. You may or may not use collateral to secure the loan. You might want a note that puts a lien against real estate. If the loan amount is large, you may want to use a financing statement and security agreement, found under our UCC section.
How a promissory note works:
A promissory note describes the loan amount and due date on the loan. It can also spell out interest payments and give the lender the right to reclaim any collateral such as goods or property, or seek other remedies if the borrower fails to pay the loan amount.
Why use a promissory note?
When the lender and borrower sign a legal form, it makes the arrangement official. Promissory notes provide evidence of the debt if you end up going to court.