Danielle Smyth reports:
"A promissory note is a binding agreement between a lender and a borrower...There are many reasons why you may need to write a promissory note; however, there are several key elements that you must include to make sure that the note is legal...If a promissory note sounds a bit like a bill, it’s quite similar. However, it has one significant difference from a bill. A bill is sent to the payer by the payee, while a promissory note is sent to the payee from the payer. According to eForms, a promissory note is a promise to pay, or a contract between a lender and a borrower in which the borrower is held accountable for the money that they have been loaned and promises to pay the money back by the agreed-upon date. It helps to look at a simple promissory note sample. According to the team at Frank, many private schools and colleges ask students or parents (or both) to sign a promissory note upon enrollment for tuition payment. While tuition may not be due until the first day of classes or move-in day, the promissory note creates a legal obligation to pay in full by a specified date. Promissory notes are also standard for mortgages, car loans, business loans and personal loans. Small businesses use promissory notes when establishing payment [plans] for customers...You can download relatively standard promissory note templates online, but sometimes it’s easier just to write one yourself. There are a few essential items you must include. Include the date you are writing or the date you plan to send the note at the top. Write the total amount due in both numeric and long-form. Add a detailed description of the loan or note terms. For example, you’ll need to include what the loan or payment is for, who will pay it and how. (One lump sum? Quarterly? Monthly?) Be sure to spell out the payment plan, including the date and amount of each payment due and when the note will be fully satisfied. You should also include whether interest will be charged, how much and how early payments affect interest; write this in numerical percentages and long-form. Include penalties for late or missed payments and the address to which payments must be sent, and indicate whether collateral is exchanged. This is more common with larger loans from major institutions. Clearly indicate each party’s [name], complete [address] and other identifying information (such as a Social Security Number or driver’s license number). Finally, make sure both parties print their names, sign and date...As long as the information above is included, promissory notes are legally binding. In disputes, courts tend to side with lenders more than borrowers; it’s easy for lenders to establish that they issued a loan and expected payment in return. If you’re a small business or individual, though, you might be worried about getting into a dispute over a promissory note. In that case, you should consult an expert. Talk to a small business lawyer or accountant to help you set up a system of accounts receivable. Finally, you can have your promissory note notarized. Notaries work at many banks and government offices and will officiate the document’s signing by both parties for a minimal fee."
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