An IOU note also known as “Promissory Note” is a commitment in writing for paying a certain debt. It is also called a Loan Note Agreement. Others names for it also include Note Form, Loan Note etc.
Format Promissory Note are drafted by lawyers or attorney hired by banks or other financial institutions like credit card companies and car loan providers.
Legally, anyone can write his own Promissory Note and its considered a legal tender and it is binding on the person who writes it.
9 Essential Elements of Promissory Note
There are certain requirements for a promissory note to be a legally binding document. The requirements are no more than specific information about type and nature and timing of the transaction.
- Date of the Promissory Note should be clearly mentioned at the very top of the page.
- The Amount of Principal Sum or in layman’s terms the money borrowed should be mentioned both in words and numbers. (as if you are writing a check)
- Nature of the loan must also be clearly mentioned. for example it should be clearly stated if the loan needs to be paid on demand or at a specific date in future.
- Re-payment method should be explained. the day, month and year of each payment must be exactly mentioned along with the amount due.
- It is common for format promissory notes to include a amortization table.
- If interest is being charged on the loan, it should be mentioned clearly in numeric and written form as well. If interest rate is a variable one, that should be mentioned clearly.
- If the Promissory note is being secured by a Deed of Trust, it should be stated as well. Normally mortgage loans are issued on such notes.
- It is very important to mention the names of all the parties to the promissory note.
- The Borrower must always sign the note and original must be kept by the holder. a copy can be given to borrower for record.