Free Promissory Note Template (PDF & Word) – 2026 Update

Most people who type “promissory note template” into Google don’t actually want a perfect document — they want one that will hold up when it matters, in their state, without forcing them to pay a lawyer hundreds of dollars for what should be a routine paperwork exercise. That is what this page is for. Below you will find a promissory note that incorporates the standard provisions courts expect, in both PDF and editable Word format.

This page provides a free promissory note template in both PDF and Microsoft Word format. The template includes both secured (collateral-backed) and unsecured versions, with sample interest, payment schedule, and default provisions that work in all 50 U.S. states. Download the version that fits your loan, customize the bracketed fields, and execute with both parties signing.

A Concrete Example

A parent lends $40,000 to an adult child to help with a house down payment. Without a promissory note, the IRS may treat the transfer as a gift, triggering gift tax reporting on amounts over the annual exclusion ($18,000 in 2024). With a properly drafted note specifying interest at the Applicable Federal Rate (AFR), monthly payments, and a maturity date, the transaction is a loan — no gift tax, and the parent retains the right to enforce repayment.

The mistake families make is signing a one-page handwritten “IOU” that lacks interest, payment schedule, and acceleration. The IRS reads that as a gift; courts struggle to enforce it. A properly drafted note (the template below) takes 30 minutes to complete, costs $0 in legal fees, and preserves both the tax treatment and the enforceability. For loans over $10,000 between family members, notarize it.

What Is a Promissory Note?

A promissory note is a written promise by one party (the «maker» or «borrower») to pay a defined amount of money to another party (the «payee» or «lender») on demand or at a specified future date. Under Article 3 of the Uniform Commercial Code, a properly drafted promissory note is a «negotiable instrument» — meaning it can be transferred from the original lender to a new holder without the borrower’s consent, much like a check or bill of exchange.

The note is the lender’s primary evidence of the debt. In a dispute or default, the note (not text messages, emails, or oral conversations) is what the court will look to first. A well-drafted note eliminates ambiguity about what was owed, when it was owed, and what happens if it isn’t paid.

Secured vs. Unsecured Promissory Notes

Secured Promissory Note

A secured promissory note is backed by collateral — specific property the lender can seize and sell if the borrower defaults. Common forms of collateral include real estate (backed by a mortgage or deed of trust), vehicles (backed by a security agreement and UCC-1 filing), and business equipment. Secured notes generally carry lower interest rates because the lender bears less risk.

Unsecured Promissory Note

An unsecured promissory note has no collateral backing it. If the borrower defaults, the lender’s only recourse is to sue for the unpaid balance and (if successful) attempt to collect on the judgment through wage garnishment, bank levies, or liens on the borrower’s property. Unsecured notes typically carry higher interest rates to compensate the lender for the additional risk.

Essential Terms of a Promissory Note

• Principal amount: The exact dollar amount being loaned.
• Interest rate: The annual rate, stated as a percentage. Must comply with state usury laws.
• Repayment schedule: Lump sum on a date certain, installments (monthly/quarterly), or on demand.
• Maturity date: The date the note is due in full.
• Late fees: Charges for payments received after a grace period.
• Default events: What constitutes default — missed payment, bankruptcy, insolvency, breach of any covenant.
• Acceleration clause: On default, the entire outstanding balance becomes immediately due.
• Collateral (secured notes only): Description of the collateral and the lender’s rights upon default.
• Governing law: Which state’s law applies.
• Signatures: Borrower (mandatory), lender (optional), and notary (recommended).

State Usury Laws

Every U.S. state has usury laws that cap the maximum interest rate on private loans. The caps vary by state and by loan type — most states allow higher rates for commercial loans and lower rates for consumer loans. Charging more than the legal limit can result in (a) the entire note being voided, (b) the interest being reduced to the legal limit, or (c) civil and criminal penalties.

Common state usury caps for unrelated-party loans:

• California: 10% (consumer), no cap (commercial under certain conditions)
• Texas: 18% (most loans)
• Florida: 18% (under $500K), 25% (above $500K)
• New York: 16% (civil usury), 25% (criminal usury)
• Illinois: 9% (most non-business loans)

Always confirm the current cap in the state where the loan is made before fixing an interest rate above 8-10%.

Common Mistakes

• Lending money without a written note (purely oral agreements are nearly impossible to enforce).
• Charging above the state usury cap.
• Failing to include an acceleration clause.
• Vague payment schedule («when convenient» or «soon»).
• Not specifying which state’s law governs.
• Skipping notarization on loans over $10,000.
• Lending to family without proper documentation (IRS may recharacterize as a gift).
• Failing to perfect the security interest on a secured note (file UCC-1 for personal property, record mortgage/deed of trust for real estate).

Frequently Asked Questions

What is a promissory note?

A promissory note is a written promise by one party (the «maker» or «borrower») to pay a specific sum of money to another party (the «payee» or «lender») on a specified date or on demand. It is a negotiable instrument under Article 3 of the Uniform Commercial Code (UCC) and is legally enforceable in all U.S. states.

What is the difference between a promissory note and a loan agreement?

A promissory note is a one-sided promise to pay. A loan agreement is a bilateral contract that includes the lender’s obligations (disbursing funds, providing notices) plus the borrower’s obligations. For simple loans, a promissory note alone is sufficient. For larger or more complex loans, a loan agreement with an attached note is preferable.

Does a promissory note need to be notarized?

Notarization is not legally required for enforceability, but it is strongly recommended — especially for loans over $10,000. A notarized note is harder to challenge and easier to enforce in court.

Can a promissory note be secured by collateral?

Yes. A secured promissory note is backed by collateral (real estate, vehicles, equipment) that the lender can claim if the borrower defaults. An unsecured note relies solely on the borrower’s creditworthiness and the lender’s ability to sue.

What is the maximum interest rate I can charge?

Every state has usury laws capping the maximum interest rate. For unrelated parties, the cap is typically 6%-12% per year, with higher rates allowed for commercial loans. Charging above the usury limit can void the entire note or limit interest to the legal rate.

What happens if the borrower defaults?

The lender may demand immediate payment of the entire outstanding balance (acceleration), sue to enforce the note, and (for secured notes) seize the collateral. The note should expressly include an acceleration clause and define what events constitute default.

Is interest required on a promissory note?

No. A zero-interest «no-interest loan» is legal between individuals, though the IRS imputes interest on loans above $10,000 between non-family members. For loans between family members, document carefully to avoid recharacterization as a gift.

Can I write my own promissory note?

Yes, and the template below is sufficient for most personal and small business loans. For loans over $50,000, secured loans involving real estate, or any business loan with multiple lenders, have an attorney review the note.

Download the Free Promissory Note

This page is published as a free educational resource and does not replace advice from a licensed attorney in your state. The template incorporates widely accepted provisions, but every transaction has facts that may require customization. If your situation involves significant money, complex parties, or specific compliance questions, an hour with an attorney is cheaper than redoing the document later.

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