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 form you find online, or hire an attorney to draft one for you. No government office issues promissory notes. The note is a private document between the borrower and the lender, so what you end up with is only as good as the template you start from and the terms you write into it.
The Three Places to Get One
Online legal document services are the middle-ground choice for most people. Platforms like LegalZoom and Rocket Lawyer sell attorney-reviewed templates with guided questionnaires that walk you through the fields. Expect to pay somewhere between $30 and $100. For a straightforward loan between family members, friends, or small business partners, this is usually enough.
Free templates are everywhere online. Some are perfectly usable. Many are incomplete or outdated. If you go this route, compare the template against the checklist in the next section and confirm every element is present. A free form missing 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, deals involving collateral like real estate or business equipment, or arrangements with multiple parties, a custom-drafted note is worth the fee. A lawyer can tailor provisions to your situation, check compliance with your state’s usury cap, and add protections generic templates skip. Fees typically run $200 to $1,000 depending on complexity.
Whichever path you choose, the template is just the shell. The information you put inside it decides whether the note holds up.
What the Note Must 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.1Legal Information Institute. UCC 3-104 – Negotiable Instrument That is the legal floor. A note that actually works in practice needs more:
- Full 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, including whether payments are monthly, quarterly, lump sum, or on demand, with each payment’s due date and amount.
- The maturity date when the full balance must be paid off.
- Late fee provisions, including any grace period and the dollar amount or percentage of the late charge.
- A default and acceleration clause defining what counts as a default and whether the lender can demand the entire remaining balance when one occurs.
- Prepayment terms stating whether the borrower can pay off the loan early without penalty.
- A governing law provision identifying which state’s law applies to disputes.
- The borrower’s signature. The note is not enforceable without it. The lender’s signature is not legally required but is worth including to show both sides agreed.
Skipping any of these does not automatically void the note, but each missing piece creates a gap that makes enforcement harder. The acceleration clause is the one most often left out of free templates. Without it, a lender whose borrower stops paying can only sue for the specific installments that are overdue, not the full remaining balance.
Pick a Payment Structure That Fits
Three structures cover most private loans. An installment note breaks the loan into regular payments over a set period and is the most common choice, because it gives the borrower a predictable schedule and the lender a steady stream of payments. A lump-sum or “balloon” note defers the entire principal and accrued interest to a single payment on the maturity date; it works for short-term bridge financing but concentrates the risk at the end. A demand note has no fixed schedule at all, letting the lender request repayment at any time, with the borrower then given a specified window (often 30 to 90 days) to pay. Demand notes are common in family and informal business lending, though the flexibility runs both directions: 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 gives both sides the clearest footing.
Set the Interest Rate Carefully
Every state has usury laws capping the maximum rate a private lender can charge. The caps vary widely, and penalties for exceeding them range from forfeiting the excess interest to having the note declared void entirely. Before settling on a rate, look up your state’s limit or ask a lawyer. A 25% rate that both parties agree to at the kitchen table does not matter if the state caps private lending at 10%.
Charging no interest has its own consequences. 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 tax 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 the rates are 3.59% short-term (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 exceptions soften this for small 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 limited to the borrower’s net investment income for the year, and if the borrower has 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
Late fees deserve their own line in the note. Most states do not cap late fees on private loans specifically, but the fee has to be reasonable. A grace period of five to seven days followed by a flat charge or roughly 5% of the overdue payment is the common pattern.
Signing, Witnesses, and Notarization
The borrower’s signature is the one piece you cannot skip. Everything else here is optional but worth considering.
Having one or two disinterested witnesses present during signing strengthens the note’s credibility if the borrower later claims the signature is not theirs or that they were pressured. A witness should have no financial interest in the loan. Most states do not require witnesses for a promissory note to be valid.
Notarization adds another layer. A notary verifies each signer’s identity and confirms the signing was voluntary. It is not legally required for most promissory notes, but it is strongly recommended for any loan above a few thousand dollars or any note tied to real property. Some recording offices will not accept a mortgage or deed of trust for filing unless it is notarized.
After signing, 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, and losing it makes enforcement significantly harder.
When a Plain Template Is Not Enough
A downloaded template handles an unsecured personal loan well. Two situations push past what a generic form can do.
The first is collateral. If you want the loan backed by real estate, the promissory note has to be paired with a mortgage or a deed of trust, depending on the state. If the collateral is personal property such as a vehicle, equipment, or inventory, the lender needs to perfect the security interest by filing a UCC-1 financing statement with the state. Filing fees are generally modest, typically $10 to $50 for electronic filing. Any secured note should describe the collateral in enough detail to leave no argument. “The borrower’s 2022 Ford F-150, VIN 1FTFW1E80NFA12345” works. “The borrower’s truck” does not.
The second is enforcement if things go wrong. A well-drafted default clause spells out exactly what triggers a default (missed payment, bankruptcy filing, sale of collateral) and what remedies follow. For unsecured notes the lender’s main option is a lawsuit, with small claims court handling smaller amounts (dollar limits vary by state, typically $5,000 to $10,000) and larger amounts going to a higher court. A signed, well-documented note makes that litigation relatively straightforward because the terms are in writing. Deadlines matter too: under the UCC, a lender generally has six years from a missed due date to sue on an installment note, with some states adopting shorter periods.5Legal Information Institute. UCC 3-118 – Statute of Limitations
Both situations are where paying an attorney to draft the note, rather than filling in a template, pays for itself the first time something goes sideways.