A promissory note is a written debt settlement agreement. This document has legal force. It will help your collection efforts if you take the time to learn how to write promissory notes.
Step
Part 1 of 3: Writing the Promissory Note
Step 1. Meet the requirements to make a promissory note that has legal force
The trick, the letter must meet several elements. Without these elements, you cannot collect the money lent.
- Loan amount: the amount of money lent and owed.
- Repayment date: due date for payment of debt.
- Interest rate: the interest rate charged on the loan. Interest rate is calculated in annual percentage or Annual Percentage Rate (APR)
- The amount of payment after the imposition of interest (principal + interest).
- The Pledge of Security Agreement: a list of all goods or services and their value as collateral for the payment of a given debt.
- Requirements regarding lateness or default, if any.
- Provisions governing default: what will happen if the debtor fails to pay on time.
- Signature
Step 2. Write down the terms and conditions of the agreement
These are the terms that creditors and debtors agree on covering each of the elements listed above. You can find forms for free on the internet. Just enter the keyword “payment form” in an internet search engine.
We recommend that you include a payment schedule with a specific due date in the letter if the debt will be paid in installments every month or week
Step 3. Decide whether you will make a promissory note with secured or unsecured
Promissory notes with collateral require the debtor to provide goods, property, or services as collateral, in case the debtor fails to pay off the debt. The collateral value must equal or exceed the loan principal.
An unsecured promissory note does not require a guarantee. Unsecured loans can be obtained by owners of good (good) to very good (excellent) credit scores
Step 4. Improve your loan security
If you have a promissory note with collateral, it means that the debtor agrees that the creditor has the right to collateral (eg property) if the debtor defaults. In the US, to ensure that their funds can be recovered, creditors can file a financial statement (form UCC1) to “refine” their interests, which means the creditor has priority over other people (eg fellow unsecured loan collectors) to collect if the debtor defaults. pay or declare bankruptcy.
- UCC forms vary by state and must be completed by the Secretary of State.
- This form usually includes a description of the warranty and its value.
Part 2 of 3: Making sure the promissory note has legal force
Step 1. Create a legally binding promissory note
For example, if it is not signed, the letter has no legal force in court. In the US, the document body must have:
- The real names of all parties interested in the transaction.
- Addresses and telephone numbers of all parties involved, including creditors.
- Signatures of debtors and witnesses. Sometimes, a creditor's signature is not required. The requirements are different in each state.
- Purpose: what will the money be used for. These requirements also differ by state.
Step 2. Inform the debtor's rights regarding the transfer clause
The debtor has the right to know that the promissory note can be transferred by the creditor to another party. The original terms and conditions still apply, but the debt will be paid to a different party.
Step 3. Notify the debtor's right to cancel the agreement
In the US, most states allow debtors to cancel a loan (not withdraw the loan) within three days after the promissory note is signed. There is a form that the debtor needs to sign informing this right.
Step 4. When the loan is repaid, issue a Release of Promissory Note
This letter confirms the end of the commitment of both parties to the promissory note. This letter can also help resolve disputes and demands that arise later.
If there is a guarantee that is guaranteed by a promissory note, make sure all liens are canceled or written off
Part 3 of 3: Collecting Unpaid Loans
Step 1. Write a letter of claim if the debt is not paid after maturity
The language in the letter must provide instructions for harsh legal action if the debtor does not repay the loan. Make sure you include the debtor's due date to avoid legal action and loss of collateral if you have a promissory note on collateral.
Step 2. Claim collateral if the promissory note is not paid
Failure to pay debts against promissory notes with collateral requires the creditor to release the collateral as payment. You will have to go to court to claim settlement or bail if the debt is not paid after it is due.
Step 3. Bring the debtor to small claims court
If the loan amount is small, for example IDR 5,000,000 or less, this option does not cost much. You have a better chance of receiving some of the funds lent in an unsecured promissory note without having to pay expensive court and attorney fees.
Tips
- When in doubt, check your letter.
- Once signed, the letter has become a legal document.
