As the name implies an unsecured promissory note is a promissory note in which a borrower doesn’t have to put something that is equal to the value of the loan amount as collateral such as car, house or any other type of property. An unsecured promissory note has also a legal value and one party can sue the other party in court in case of violation of the terms. Unsecured promissory notes, like simple and personal promissory notes are common for loans in which the parties, the lender and the borrower know each other like a loan from a family member, friend or any other third party. The biggest advantage of a promissory note is that the lender can offer a loan amount to the borrower on behalf of a third party.
The purpose of creating an unsecured promissory note is that the borrowing party is legally bound to respect the demanding date of the lender and that the amount given to the borrower is a loan not a gift. In some types of unsecured promissory notes the lender never charges an interest rate while in other types the rate of interest is comparatively high to that of secured promissory notes.
A Sample unsecured promissory note
Amount in $___________ CITY and STATE DATE
FOR VALUE RECEIVED, _____________________________(hereafter, “Borrower”), an individual [or type of business entity], promises to pay _____________________, an individual [or type of business entity] (hereafter, “Lender”), at [Complete address including city, state, Zip code and phone number], or at such other place as Holder hereof may from time to time designate in writing, the principal sum of _________________ Dollars ($_______), with interest accruing on the unpaid principal at the rate of ____ percent (___%) per annum from _______, 20__ (date with year) until paid. The aforementioned principal sum represents monies owed to __________________ for ________________________________________________.
Principal and interest are payable in monthly installments due on or before the ______ (___) day of each month until paid in full, with the first such payment to be made on or before _______, 20__. In no event shall interest exceed the maximum amount permitted by law. Any amount collected in excess of the maximum legal rate shall be applied to reduce the principal balance. Executed in the presence of:
_______________________ [NAME OF COMPANY]
_______________________ by: ___________________________
Guidelines for creating an unsecured Promissory note
- Clearly state on the top of the note that the note is an unsecured promissory note.
- At the top of the note, write the total loan amount in dollars, the state, city and country of the lenders and borrowers and the date of creating the note.
- List the information about the borrower, the lender, the date of repayment, total loan amount, interest rate, the method or mode of repayment, the date of the first installment and the date of the last installment.
- List all the terms of the unsecured promissory note as well as any conditions you or the lender wants to add in.
- Clearly mention the points and circumstances that will make the unsecured promissory note violated.
- At the end of the note leave proper spaces for signatures of the parties and witness as well as for the attestation and date.