What Is a Promissory Note?
Whether it's a loan from a relative or a business note, the document turns a casual "I'll pay you back" into something a court can enforce.
What every promissory note should specify
- Principal — the exact amount borrowed.
- Interest rate — the rate and whether it's fixed or variable.
- Repayment terms — schedule, due dates, and whether it's installments or a lump sum.
- Default terms — what happens if you miss payments, including acceleration.
Secured vs. unsecured — a big difference
A note can be secured (backed by collateral like a car or property) or unsecured (backed only by your promise). With a secured note, default can mean losing the collateral; with an unsecured note, the lender has to sue to collect.
An acceleration clause lets the lender demand the entire remaining balance at once if you miss a payment or breach a term — turning one late payment into the whole debt coming due. It's one of the most consequential lines in the note.
What to check before signing
Confirm the principal, interest rate, and total cost over the life of the loan. Check whether the rate is legal in your state (usury limits cap how high it can go). Understand the default and acceleration terms, whether it's secured, and whether there's a prepayment penalty for paying early. A note that's vague on repayment is a note that invites disputes.
Signing or holding a promissory note?
Paste it into Main AI — it breaks down the interest, repayment, and default terms, and flags anything that could cost you later.
Analyze your document — freeCommon questions
Is a promissory note legally binding?
Yes. A properly written promissory note is an enforceable contract. If the borrower defaults, the lender can use it to pursue repayment, including in court. That's exactly why the terms inside it matter.
What's the difference between a secured and unsecured note?
A secured note is backed by collateral the lender can claim if you default; an unsecured note is backed only by your promise to pay, so the lender must sue to collect. Secured notes carry the risk of losing the pledged asset.
What is an acceleration clause?
It lets the lender demand the entire remaining balance immediately if you miss a payment or breach the note, rather than just the overdue amount. One missed payment can trigger the full debt becoming due.
Can the interest rate be too high to enforce?
It can. States set usury limits capping legal interest rates, and a rate above the limit may be unenforceable or reduced. It's worth checking your state's cap against the rate in the note.