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What is a Personal Promissory Note? A Comprehensive Legal Guide
Definition & Meaning
A personal promissory note is a written agreement in which one person promises to repay a loan to another. This type of note is typically used when individuals lend money to family members or friends. Unlike informal verbal agreements, a personal promissory note serves as a legal document that outlines the terms of the loan, including the amount borrowed, the interest rate, and the repayment schedule. It also specifies the consequences if the borrower fails to repay the loan as agreed.
Table of content
Legal Use & context
Personal promissory notes are commonly used in personal finance and family law contexts. They provide a clear framework for loans between individuals, reducing the risk of misunderstandings. In legal practice, these notes can be important in civil cases where repayment disputes arise. Users can create their own personal promissory notes using templates available through services like US Legal Forms, which are drafted to meet legal standards.
Key legal elements
Real-world examples
Here are a couple of examples of abatement:
Example 1: A parent lends $5,000 to their child to help with a down payment on a house. They create a personal promissory note that states the child will repay the loan at an interest rate of 5% over five years.
Example 2: A friend loans $2,000 to another friend for medical expenses. They draft a personal promissory note that outlines a repayment plan of $200 per month for ten months. (hypothetical example)
State-by-state differences
State
Interest Rate Limits
Specific Requirements
California
10% maximum for personal loans
Must be in writing to be enforceable
Texas
No maximum limit for personal loans
Must include specific repayment terms
New York
16% maximum for personal loans
Written agreements must be clear and signed
This is not a complete list. State laws vary, and users should consult local rules for specific guidance.
Comparison with related terms
Term
Definition
Key Differences
Promissory Note
A written promise to pay a specified amount.
Can be used for various types of loans, not just personal.
Loan Agreement
A formal contract outlining the terms of a loan.
Typically more detailed and legally binding than a promissory note.
IOU
An informal acknowledgment of a debt.
Less formal and not usually legally enforceable.
Common misunderstandings
What to do if this term applies to you
If you are considering lending or borrowing money from a friend or family member, it is wise to draft a personal promissory note. This document can help clarify the terms and protect both parties. You can find ready-to-use templates on US Legal Forms to simplify the process. If your situation is complex or involves significant amounts, consider consulting a legal professional for tailored advice.
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