How to Write a Promissory Note in the United States

A promissory note is a written promise to repay borrowed money on defined terms. In the United States, promissory notes are governed by state contract law and, when the note is negotiable, by Article 3 of each state's Uniform Commercial Code. Interest is capped by state usury statutes.

This guide walks through the decisions that shape an enforceable note — whether to secure it with collateral, how to set a lawful interest rate, which repayment structure fits the loan, how co-borrowers share liability, and what happens on default — so the document actually protects the lender while staying fair to the borrower.

Secured or unsecured?

An unsecured note is backed only by the borrower's promise to pay; if the borrower defaults, the lender's remedy is to sue for the balance. A secured note pledges specific collateral — a vehicle, equipment, real estate — and grants the lender a security interest, so the lender can repossess or foreclose on that property if payments stop.

Securing the note materially strengthens the lender's position. When you take collateral, describe it precisely in the note and, for most personal property, perfect the security interest by filing a UCC-1 financing statement so the lender's claim has priority over later creditors.

Interest and usury limits

Interest can be structured three ways: none, simple (charged only on the outstanding principal), or compound (charged on principal plus accrued interest, at a stated compounding frequency). Compound interest grows the balance faster and is scrutinized more closely.

Every state sets a maximum lawful rate through its usury statute, and the cap often differs for individual versus business borrowers. Charging above the ceiling can be costly: depending on the state, a usurious note may forfeit the interest, or the entire obligation may be void. As a safeguard, note the rate is 'not to exceed the maximum rate permitted by law' and verify the ceiling in the governing state before setting a rate.

Choose a repayment structure

Match the repayment terms to how the borrower will actually generate the money. A lump sum on a fixed maturity date suits a short bridge loan repaid from a known future event. Equal installments spread principal and interest across regular weekly, monthly, or quarterly payments — the most common structure for consumer and small-business loans.

An interest-only note with a balloon keeps periodic payments low but leaves the entire principal due at the end, so the borrower needs a clear plan to refinance or pay the balloon. A demand note has no fixed schedule at all — the full balance comes due whenever the lender calls it. Standard practice applies each payment first to accrued interest, then to principal.

Co-borrowers and joint-and-several liability

When two people borrow together as co-makers, the note should make them jointly and severally liable. That means the lender can pursue any one borrower for the entire amount owed — not just that borrower's 'share' — without first proceeding against the other or against any collateral.

Joint-and-several liability protects the lender if one borrower becomes insolvent or disappears, because the other remains fully on the hook. Borrowers should understand they are each guaranteeing the whole debt, not a fraction of it. A separate personal guarantor can add a further layer of security for loans to a business entity.

Default and acceleration

Define clearly what counts as a default — typically failure to pay when due, the borrower's bankruptcy or insolvency, or any breach of the note. Pair the default definition with an acceleration clause: on default, the lender may declare the entire unpaid balance, plus accrued interest, immediately due and payable rather than waiting out the original schedule.

Reinforce these remedies with a late-fee clause (kept modest, since excessive fees can be unenforceable in some states) and a provision shifting reasonable collection costs and attorneys' fees to the borrower where the law allows. A grace period before late fees apply keeps the terms fair and defensible.

Put it together

Once you have made the substantive choices above, assembling the note is straightforward. Work through the terms in order and make sure every dollar figure, date, and rate is consistent throughout the document.

1.Identify the lender and borrower(s), and decide whether to add a co-borrower or personal guarantor.
2.Set the principal (in figures and words), the funding date, and the interest type and rate — checking the rate against the governing state's usury cap.
3.Pick a repayment structure (lump sum, installments, interest-only balloon, or on demand) and fill in the maturity date and payment amounts.
4.Decide whether the note is secured; if so, describe the collateral and plan to file a UCC-1 to perfect the security interest.
5.Add default, acceleration, late-fee, and collection-cost clauses, and name the governing state.
6.Have every borrower, the lender, and any guarantor sign and date; keep the executed original with the lender.

Key takeaways

✓ A secured note lets the lender reach collateral on default; unsecured notes rely on suing for the balance.
✓ Keep interest at or below the governing state's usury cap — usurious rates can void the interest or the whole note.
✓ Choose a repayment structure (lump sum, installments, interest-only balloon, or on demand) that matches how the borrower will repay.
✓ Make co-borrowers jointly and severally liable so the lender can pursue any one of them for the full amount.
✓ Define default precisely and pair it with an acceleration clause plus modest, lawful late fees and collection-cost recovery.

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