A payment agreement, which is often also referred to as a promissory note, is an agreement that stipulates the terms of procurement and loan payments. If you want to lend or borrow money from someone you know, it's a good idea to make a payment agreement. This agreement letter stipulates the amount of interest, the parties involved in the loan, and the time of loan repayment. Thanks to a notarized written letter, all parties involved in the loan have agreed to all the terms contained therein.
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Part 1 of 4: Getting Started Writing a Payment Agreement
Step 1. Search for available examples
Look for examples of payment agreements or promissory notes on the internet and use them as a guide. Each industry has its own standard payment agreement which may differ from the information in this article.
For example, if you make a student loan payment agreement, the content is different from the explanation in this article. Look for examples on the internet and use them as a guide for your letter writing
Step 2. Determine the format of your document
You can start creating this letter by opening a blank document in a word processing program and setting the font size and type so that it is easy to read. Usually, the format used is Times New Roman 12 or 14. Choose a font type and size that you and others can read comfortably.
Step 3. Include a title
You can title it “Payment Agreement Letter” or “Promissory Note.” Write the title in bold and capital letters to make it stand out. Position the title in the middle of the line of your document.
Step 4. Identify interested parties
You need to determine who is borrowing (debtor) and lending (creditor). You also need to include loan date information in this letter.
Write: "This payment agreement was made on August 12, 2017, by Zuhri Ramadhan, domiciled in Jakarta, the debtor, and Maya Sahara, domiciled in Bandung, the debtor."
Step 5. Include your consent
Loans are not valid until the lender and borrower agree on the things they must do and the rewards to be received. You must state what both parties agree on.
For example, write "Regarding the granting of loans from creditors to debtors, and repayment of debts from debtors to creditors, both parties agree to the following terms."
Part 2 of 4: Explaining Loan Terms
Step 1. Determine the loan amount and interest
The first thing that must be included in the agreement letter is the loan amount and interest rate. If you want to charge interest, check the laws of your state and province. For example, a loan with interest will be taxed. Otherwise, the loan will be considered a grant. In addition, your country may also set a maximum interest rate that may be charged. You can find this information on the internet.
You can write: “The creditor promises to lend Rp. 5,000,000 to the debtor. The debtor promises to repay this amount to the creditor, together with the interest receivable on the principal of the loan at 4% per annum, starting from the date of granting the loan
Step 2. Describe the payment schedule
You must include the full repayment date of the loan. You should also include a monthly payment schedule in the payment agreement letter. On this schedule, list each date and the number of monthly payments to be made. If you do not charge interest, simply divide the total principal of the loan by the number of monthly payments that will be made.
You can write: “The debtor will make payments according to Schedule 1. The loan will be fully repaid on August 12, 2018.”
Step 3. Grant early payment rights
Debtors may be able to pay their debts early. You must confirm the permission of this right in the Payment Agreement Letter. Usually, this benefits creditors because they can get their funds early. However, the lender will also lose some of the interest income.
You can write “The debtor has the right to pay off the loan in full or in part before the due date without any penalty, provided that the debtor gives prior notice. If the Debtor pays off part of the loan, there will be no changes to the due date or monthly payment amount, unless approved by the creditor."
Step 4. Explain late fees
Creditors may want to impose additional penalties or interest for late loan payments. You must explain the rate and how to calculate the late payment penalty imposed.
For example, you could write: "If the Creditor does not receive the full monthly payment within 15 days after the due date, the Creditor may impose a penalty on the Debtor as much as 1% of the amount of the late payment."
Step 5. Identify defaults
“Default” occurs when the debtor does not comply with the terms of the payment agreement. Usually, debtors will default when they miss payments. However, creditors usually defer their right to default.
- Creditors usually defer their right to immediately collect payment of all principal and interest on the loan.
- You can write: "If the Debtor is unable to comply with the requirements stipulated in this Payment Agreement, the Creditor has the right to immediately collect all the principal and interest of the outstanding loan." With this statement, the creditor does not have to declare a default, but the debtor has the option if he misses a payment.
Part 3 of 4: Completing the Payment Agreement
Step 1. Decide how to change the agreement
You may decide to change the terms of the Payment Agreement after it has been signed. In this situation, you need to change the related agreement letter. Therefore, when making a letter of agreement, you must include a provision that explains that you are allowed to change the terms.
You can write “All provisions of this Agreement cannot be changed or waived, unless agreed and signed by both parties.”
Step 2. Explain that this letter represents the entire agreement
Do not let one of the parties then state the existence of a side verbal agreement. For that, include a provision stating that this written payment agreement represents the entire agreement of both parties.
For example, write “This agreement contains all the terms agreed upon by both parties concerned. This letter erases all discussions, understandings, and agreements, both oral and written, that occurred before.”
Step 3. Add a severability clause
If a lawsuit arises, the judge may feel that one of the terms of your payment agreement does not comply with the law. If so, the judge may cancel the entire payment agreement. To prevent this, you must include a "severability clause" in the payment agreement.
You can write “If any part of this agreement is found to be invalid or unenforceable, the remaining provisions will still be valid and enforceable.”
Step 4. State the law underlying the agreement
If a lawsuit arises, the judge needs to interpret the contract according to applicable law. You must determine the law used in making the agreement. Usually, the creditor makes an agreement using the applicable law in his domicile.
You can write: “This agreement is made in accordance with the laws in force in Indonesia.”
Step 5. Provide a box for affixing a signature
Creditors and debtors must sign this Agreement. Include signature lines for both parties. Below each line, include:
- name
- title
- date
Step 6. Include a box for notary signature, if required
Perhaps your Letter of Agreement needs to be signed by a notary public. If so, do an internet search and find a suitable place for the notary's signature below the signature line.
- You can look for notaries in major banks and courthouses. You can also look it up on the internet.
- It is recommended that you bring your ID to show it to a notary. You can use your KTP or SIM.
Part 4 of 4: Determining Lending
Step 1. Determine if you can afford the loan
Many people lend money to family or friends who are in trouble. However, your ability to lend money should be confirmed beforehand. Ask yourself the following questions:
- Do you need to save extra money for retirement? If so, you should not give a loan.
- Do you have debts that need to be paid? If you don't lend to friends or family, you can pay off your debt faster.
- How important is it that your loan must be returned and are you able to provide a loan? Giving loans to people you know can strain your relationship. If they are unable or refuse to repay the loan, you will be forced to sacrifice relationship harmony by paying off the loan.
Step 2. Ask why the borrower needs the money
Some loans are never repaid, and you should know why the borrower needs the money. For example, a borrower may need money to pay for hospital fees, or have difficulty paying student loans. Even people who are careful with their money can get into a lot of debt.
However, there are also people who borrow money to cover other debts. This is a sign that the person is experiencing financial difficulties. Instead of giving him a loan, it's best to ask him to visit a credit counselor
Step 3. Consider alternatives that don't involve debt
There are several ways to help a friend or family member without giving out a loan. For example, you can lend your car if the transportation needs are not met. You can also allow that friend or relative to stay with you temporarily.
These methods may not sound ideal, but they are less risky than making loans that may never be repaid
Step 4. Discuss loan parameters
After deciding to give or ask for a loan, you must meet face-to-face with the other party to discuss and agree on the terms of the loan.
- If you are borrowing money, be honest about your financial situation and set a reasonable repayment period.
- If you are lending money, set a definite limit on the amount of money lent, and determine when you need to repay the loan.
- If both parties have expressed their needs and concerns, there should be no dissatisfaction on either side of the loan agreement.
Step 5. Determine the loan repayment schedule
The loan repayment schedule must be agreed by both parties. Thus, there is no hatred and tension that arises because the agreed schedule does not burden both parties. By entering into a loan repayment agreement, both the creditor and the debtor must be sure that the loan will be repaid.
- If you borrow money, don't be too sure you can pay off the debt quickly. Make a budget and plan how and when you pay off debt.
- If you are lending money, determine how quickly you need the loaned funds and whether you can afford to extend the time to relieve the debtor.
- You can calculate the loan principal and interest payment schedule using a debt calculator on the internet.
