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Written by Nora Whitfield, editorial lead. State rules checked by Samuel Okafor, rules editor, on October 20, 2026.
What is a promissory note?
A promissory note is a written promise to pay money. It says who borrowed, who lent, how much, at what interest rate, and when the money will be repaid. It is the document a lender reaches for when a payment stops and the borrower says the terms were different.
The phrase sounds more formal than it is. A note can be one page in plain English. What makes it useful is not legal vocabulary but clarity: one amount, one rate, one schedule, one consequence for not paying.
The parts that matter
Every note needs a borrower, a lender, a principal amount and a promise to repay. Beyond that, a useful note states the interest rate, the payment amount and frequency, the first payment date, the final due date, and what happens if a payment is late.
If the loan is secured, the note should identify the collateral and say that the lender has a security interest. For a vehicle, the lender may need to be listed on the title. For real estate, a mortgage or deed of trust is the usual document, and a promissory note alone does not create a public lien.
- Both parties' full legal names and addresses
- The principal amount in numbers and words
- The annual interest rate, even when it is zero
- Payment amount, frequency, first payment and maturity date
- Late fee and grace period, or a statement that there is none
- What counts as default and what the lender may do
- The state whose law governs
Promissory note vs IOU
An IOU usually records that a debt exists. It may not say when the money is due, what interest applies, or what happens if the borrower does not pay. A promissory note is the fuller agreement.
A note can still be short. The test is whether a stranger reading it could calculate what is owed on a given date and tell whether the borrower is in default. If the answer is no, the note needs another sentence.
A note is not a receipt. If cash changes hands, write a separate receipt with the date and amount, or add a sentence to the note acknowledging that the lender paid the principal on the loan date.
What makes it enforceable
A note is a contract, so the ordinary rules of contract law apply. There must be an offer, an acceptance and consideration, which in a loan is the money the lender advances. Both parties should sign, and the terms should be clear enough to enforce.
No state requires a promissory note to be notarized or witnessed. A notary can still help if the signatures or the date are later disputed, and a lender may ask for a notarized note before buying or assigning it. The builder adds a notary block when the state rule calls for one.
Interest and state limits
Each state sets a usury limit, and the limit can depend on the type of lender, the size of the loan and whether the loan is for a business or a consumer. A private loan at a modest annual rate is usually safe. A high-rate loan from an unlicensed lender can be limited or unenforceable.
Put the rate in the note as an annual percentage, not a monthly number that the borrower has to convert. If the rate is zero, say zero. A blank interest line invites a later argument about what the parties intended.
If the borrower stops paying
Start with a written reminder that states the amount due and the date. If the borrower cannot pay, a written modification is better than an informal pause. If the note is secured, the lender must follow the state's process before repossessing or selling the collateral. Self-help can create a claim against the lender.
For an unsecured note, the lender's main tool is a lawsuit. A signed note with clear terms makes that process faster and cheaper. Keep the original, the payment records and any modification together.
Build the document
The guide explains the form. The builder fills it in for your state and shows the signing rules.
Questions
Does a promissory note need to be notarized?
No state requires notarization for a private promissory note. A notary can help prove the signatures and the date, and some lenders ask for one. The builder adds a notary block when the state rule requires it.
What interest rate can I charge?
Each state sets a usury limit, and the limit can depend on the loan and the lender. A modest rate between private parties is usually safe. If you are lending as a business or charging a high rate, have a lawyer check the limit in the borrower's state.
Is a promissory note the same as a loan agreement?
They overlap. A loan agreement is usually longer and covers conditions, representations and events of default in more detail. A promissory note focuses on the promise to repay. For a simple private loan, a note is often enough. For a large or secured loan, use both.
Can I change a promissory note after it is signed?
Yes, if both parties agree in writing. Sign a dated amendment that refers to the original note and states exactly what changes. Do not write over the original or rely on a text message.
Keep reading
PaperDeed is not a law firm and does not provide legal advice. We provide self-help templates and general information about signing rules. If you are unsure whether a document fits your situation, talk to a licensed attorney in your state.
Every signing rule in the builder names its statute or state form, and links to the official text where the state publishes it online. Rules updated October 20, 2026.