Unsecured Promissory Note

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.

Related Notes

  • Simple Promissory Note A simple promissory note is a loan document that shows an agreement between two parties and bounding the lender and the borrower legally. A simple promissory note is based on a number of details of the loan such as the amount of the loan, the names of both the parties, contact information of the parties, applied interest rate and a specific date or due date on which the borrower has to pay back the loan amount to the lender. The purpose of adding a list of information in a simple […]
  • Secured Promissory Note Sample This type of note is a written document that is backed by a property as a collateral or security for the loan amount. In a secured promissory note, it is stated that if the borrower is failing to repay the loan amount on the due date, the lender will then take your property. There are many lenders who never pay the loan amount without any security and is usually used in commercial or real estate loans. Secured promissory a bit stressing on the part of the borrower because if due to […]
  • Personal Promissory Note A Personal Promissory Note is the one used between two parties like friends and family members on a small level with a small amount of loan. As compared to commercial and other types of business related promissory notes, a personal promissory note is not used by people commonly because people usually feel shy in creating some legal documents for personal loans. There is no need to feel shy or unpleasant because a promissory note is just used to eliminate misunderstanding and is good […]
  • Demand Promissory Note A demand note is a type of promissory note or loan note without any specified time for the repayment of the loan and is held by the lender that he can use it any time and call the borrower for the repayment of a loan.  These notes are provided by the lender in a flexible manner and usually based on a long term in which the lender never asks for the repayment of the loan to borrower unless he needs his money. When the demand notes are created by the loan parties, there is no kind of […]
  • Payment Promissory Note Payment notes are also known as notes payable are a type of contract or agreement that comes into existence between two parties when one party receive a loan from another party for a specific period of time with a due date and with a specific amount of interest rate charged on it annually. Payment notes that are based on a period of one year or less are known as short payment notes while those having a period greater than one year are considered long term payment notes. Payment notes […]