Instructions

For An
Unsecured
Promisory Note
(A Legally Binding IOU)

Instructions for an
Unsecured Promissory Note

Contained In This Guide

Loans from family and friends can be recorded to document the details
of the loan, terms of repayment, and applicable interest rates. Although
verbal IOUs are binding, enforcing them in court is difficult as the lender
does not have written proof of the transaction. An unsecured promissory
note can document the terms of the loan and give both parties peace of
mind that the lender will not demand the money back before the agreed
upon time and proof of the loan should the lender need to go to court to
enforce the collection. A template is included in this Guide.

Additional assistance can be obtained by visiting us and scheduling an

appointment at IndyAllies.com

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division of Indy Allies. The other two divisions
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Instructions for an Unsecured Promissory Note

What is a Promissory Note?

Secured v Unsecured

A promissory note is a legally binding equivalent of an

IOU.

A loan is unsecured if the lender makes the loan

without a requirement that the borrower pledge
something of collateral. Collateral is something
of value owned by the borrower that the borrower
promises will be turned over to the lender should
the borrower fail to repay the loan according to the
terms of the agreement. Collateral can be valuable
personal items, such as a car or watch or it can involve
real estate (a house or land) Contracts involving real
property must be recorded in the County Recorders
office in the county in which the property is located.

Whenever one person borrows money from another

with a promise to repay, a contract has been made. A
contract is a legally binding agreement that can be
enforced through court if a party to the agreement
defaults or doesnt follow the terms of the agreement.
This form of contract can be oral, but oral contracts
can be extremely difficult to enforce.
A promissory note, is a written agreement,
documenting the terms of the loan and repayment.

Enforcing a Note
If the lender defaults or fails to repay the loan as
agreed, the borrower can ask the courts to help enforce
the contract. Having a promissory note goes a long
way to proving the money was lent and the terms of
repayment. A court can help a borrower enforce the
terms of the contract through garnishment of wages or
attachment of assets.

Terms
The terms of the loan are subject to agreement by
the parties. The law permits a lender to charge a
reasonable interest rate based upon the situation. The
parties can agree that the loan be repaid all at once on
a given date or upon the occurrence of an event. In the
alternative, the parties can agree that the loan shall be
repaid over time, say weekly, monthly, or any other
agreed upon time period.

Completing the Template

The template below is for an unsecured loan. No
collateral is used in this form of loan. Do not use
the template below for loans that are guaranteed by
collateral.
The instructions appear in italics and parentheses.
A word document is attached for your use.
It is best to get both parties signatures on the
promissory note. The Lender must have the borrowers
signature in order to enforce the terms of the loan in
court.
It is not necessary in Indiana to have promissory notes
notarized.
It is recommended to make two copies of the note
and have parties sign each one so each person has an
original.

UNSECURED PROMISSORY NOTE

Borrower: (Full Legal Name, Address)
Lender: (Full Legal Name, Address)
Terms:
Borrower promises to repay Lender (full amount of loan), to be repaid in full along with (Agreed upon
interest rate, ex 6%) interest no later than (date agreed upon by which loan must be repaid).
(Use this and the following paragraph if agreement is for Borrower to make monthly payments)
Borrower promises to make monthly payments in the amount of (agreed upon monthly amount) per month
no later than the (date of month parties agree payment will be made) of each month to Lender.
Lender may demand payment in full should Borrower default on the note. (If borrower misses a payment on
the given date agreed upon, this lets lender demand the amount due in full)
Borrower may pay the amount due in full at any time without prepayment penalties.
Borrowers Signature ________________________________________ Date ____________
Borrowers Printed Name _____________________________________________________
Lenders Signature ___________________________________________ Date ___________
Lenders Printed Name ________________________________________________________