Promissory Note Template: Secured vs Unsecured Loan Guide

Quick answer: A promissory note template is a ready-made document where a borrower promises in writing to repay a loan. It should name the borrower and lender, state the principal, interest rate and repayment schedule, set out late fees and default terms, say whether the note is secured by collateral or unsecured, and be signed and dated by the borrower.

Promissory notes are used for everything from family loans to business owners lending money to their company to clients who need to repay a large overdue bill over time. This guide gives you a fill-in promissory note template, explains secured vs unsecured notes, and walks through a full repayment schedule with real numbers. If your situation is an unpaid invoice rather than a cash loan, it may help to first send a clear statement of what is owed, which you can create with our free invoice generator.

This article is general information, not legal or tax advice. Lending rules and usury limits vary by state and country, so have a lawyer review notes for large amounts.

What Is a Promissory Note?

A promissory note is a signed promise to pay a specific sum of money, either on demand or according to a schedule. In US law it is a type of negotiable instrument, the same broad family as checks; Cornell's legal dictionary entry on negotiable instruments gives a short overview. The borrower is called the maker or promisor and the lender is the payee or holder.

A promissory note is lighter than a full loan agreement. A loan agreement usually includes warranties, covenants and detailed conditions both parties must meet. A note focuses on the promise to repay and the key terms. For many small loans, a note is all you need.

Promissory note vs other payment documents

Document	Main purpose	Who signs	When to use it
Promissory note	Borrower's promise to repay money, with interest and terms	Borrower (lender often too)	Personal loans, business loans, converting a large debt into scheduled payments
Loan agreement	Full contract with covenants and conditions	Both parties	Larger or complex loans, bank lending
Payment plan agreement	Schedule for paying an existing bill	Both parties	Overdue invoices paid in installments
IOU	Informal acknowledgement of a debt	Borrower	Very small, informal amounts (weak evidence)
Invoice	Request for payment for goods or services	Not signed	Billing a customer for work done

If you only need installments on an existing bill without interest or collateral, a simpler payment plan agreement may be enough.

Secured vs Unsecured Promissory Notes

The biggest decision when you fill out a promissory note template is whether it will be secured.

Secured promissory note

A secured note is backed by collateral: a vehicle, equipment, inventory, receivables or real estate. If the borrower defaults, the lender can claim the collateral. To make the security interest work, you normally need a separate security agreement describing the collateral, and for business assets in the US the lender often files a UCC-1 financing statement with the state to put other creditors on notice. Loans secured by property are documented with a mortgage or deed of trust that gets recorded.

Unsecured promissory note

An unsecured note relies only on the borrower's promise. If they stop paying, the lender has to demand payment and, if needed, sue for a judgment before collecting. Unsecured notes are faster to set up and common between family members, friends or a business and a trusted client.

Feature	Secured note	Unsecured note
Collateral	Yes, described in a security agreement	None
Lender's risk	Lower	Higher
Typical interest rate	Lower	Higher, to reflect risk
Extra paperwork	Security agreement, possibly a UCC-1 filing or recorded mortgage	Note only
If the borrower defaults	Lender can pursue the collateral	Lender must demand and usually sue
Common uses	Vehicle or equipment purchases, business loans, real estate	Family loans, small business loans, overdue-invoice settlements

What to Include in a Promissory Note Template

A solid promissory note covers these points. Missing any of them is the most common reason notes cause disputes later.

• Date and place the note is signed.
• Parties: full legal names and addresses of the borrower and lender. For a company, the registered business name and the signer's title.
• Principal: the amount borrowed, in numbers and words.
• Interest rate: annual rate, whether it is simple or compounding, and when interest starts.
• Repayment terms: installment amount, frequency, first and final due dates, or a single lump-sum date.
• Payment method: where and how to pay (bank transfer, check, ACH).
• Late fees and grace period: for example, a fee if a payment is more than 10 days late, within your state's legal limits.
• Prepayment: whether the borrower can pay early without penalty.
• Security: "secured" with a reference to the security agreement and collateral, or "unsecured".
• Default and acceleration: what counts as default and the lender's right to demand the full balance.
• Governing law: the state or country whose law applies.
• Signatures: borrower (required), lender (recommended), co-signer or guarantor if any, and optionally a notary or witness.

Free Promissory Note Template (Copy and Fill In)

Copy this template into a document and replace the bracketed text. It is written as an unsecured installment note, with an optional line for security.

PROMISSORY NOTE

Date: [date]   Place: [city, state]

Principal amount: $[amount] ([amount in words] dollars)

1. Promise to pay. For value received, [Borrower full name], of [address] ("Borrower"), promises to pay [Lender full name], of [address] ("Lender"), the principal sum above plus interest at [rate]% per year on the unpaid balance.

2. Payments. Borrower will pay [number] monthly installments of $[amount], beginning on [first date] and continuing on the [day] of each month until [final date], when any remaining balance and interest are due.

3. Payment method. Payments will be made by [bank transfer / check / ACH] to [details].

4. Late payment. If any installment is more than [number] days late, Borrower will pay a late fee of $[amount] or [percent]%, as permitted by law.

5. Prepayment. Borrower may prepay all or part of the balance at any time without penalty.

6. Security. [This note is unsecured.] OR [This note is secured by the collateral described in the Security Agreement dated (date).]

7. Default. If Borrower fails to make any payment within [number] days after written notice, Lender may declare the entire unpaid balance and accrued interest immediately due.

8. Governing law. This note is governed by the laws of [state/country].

Borrower signature: ____________ Date: ______
Lender signature: ____________ Date: ______

How to Create and Sign a Promissory Note: Step by Step

1. Agree the terms first. Principal, rate, schedule, collateral and late fees should be settled before anything is written.
2. Check legal limits. Confirm your state's maximum interest rate (usury limit) and any limits on late fees.
3. Calculate the payment schedule. Work out the installment amount and build an amortization table (see the example below).
4. Fill in the template. Use full legal names and write the principal in numbers and words.
5. Prepare a security agreement if the note is secured, and file or record it where required.
6. Sign. The borrower signs; the lender signs too if the note contains lender obligations. Add a notary or witness for larger amounts.
7. Store the original. The lender keeps the signed original; the borrower gets a copy.
8. Track every payment. Issue a receipt for each installment and keep a running balance.

Worked Example: A $12,000 Note at 6% Over 24 Months

A small business owner lends $12,000 to a supplier, repayable in 24 equal monthly payments at 6% annual interest. The monthly rate is 6% divided by 12, which is 0.5% (0.005).

The standard installment formula is: payment = principal × r ÷ (1 − (1 + r)⁻ⁿ), where r is the monthly rate and n is the number of payments.

• (1.005)²⁴ ≈ 1.127160, so (1.005)⁻²⁴ ≈ 0.887186
• 1 − 0.887186 = 0.112814
• $12,000 × 0.005 = $60.00
• $60.00 ÷ 0.112814 ≈ $531.85 per month

Over 24 months the borrower pays $531.85 × 24 = $12,764.40, of which $764.40 is interest. The first few lines of the schedule look like this:

Payment	Opening balance	Interest (0.5%)	Principal	Closing balance
1	$12,000.00	$60.00	$471.85	$11,528.15
2	$11,528.15	$57.64	$474.21	$11,053.94
3	$11,053.94	$55.27	$476.58	$10,577.36

Each month the interest share shrinks and the principal share grows. Because of rounding to the cent, the final payment is often a few cents different from $531.85, so say in the note that the last installment "will equal the remaining balance plus interest".

For family loans in the US, check the tax side as well. Section 7872 of the Internal Revenue Code can treat a loan charging less than the applicable federal rate as a below-market loan with imputed interest, though gift loans between individuals of $10,000 or less in total are generally outside the rule.

Using a Promissory Note for an Overdue Invoice

Freelancers and small businesses often meet promissory notes when a client owes a large invoice they cannot pay at once. Turning that balance into a note gives you a signed acknowledgement of the debt, a fixed schedule and a default clause, which is much stronger than an email promise.

A practical sequence:

• Send a final reminder and an up-to-date statement of account showing the total owed.
• Offer a note with installments, possibly waiving some late payment fees in return for a signed commitment.
• Invoice each installment as it falls due, referencing the original invoice and the note. A partial payment invoice keeps the running balance clear.
• If the client defaults, send a formal demand letter for payment before taking further steps.

For practical tactics when a client goes silent, see our guide on what to do when a client is not paying an invoice, and for smaller amounts, small claims court for an unpaid invoice is often the cheapest enforcement route.

Promissory Note Mistakes to Avoid

• Vague repayment dates. "When you can" is not a schedule. Use fixed dates.
• Interest above the legal limit. Usury rules differ by state and can void interest or add penalties.
• No default clause. Without acceleration, you may have to sue for each missed payment separately.
• Collateral named but not documented. A note that says "secured by the truck" without a security agreement and proper filing may leave you unsecured in practice.
• No payment records. Issue receipts and keep a ledger; disputes usually turn on what was paid and when.
• Not marking it paid. When the loan ends, mark the original "Paid in Full", sign it and return it, and release any lien.

Bill Every Installment Clearly

A promissory note template sets the promise; clean records make it stick. Whether your note is secured or unsecured, send a dated, numbered bill or receipt for each installment that references the note and shows the remaining balance. You can do that in minutes with our free invoice generator, keep numbers in sequence with the invoice number generator, and use a plain minimal invoice template so each installment is easy to read and file. Every invoice exports as a PDF, so it looks the same on your client's phone, laptop or printer.