What a Promissory Note Should Include: A Complete Checklist

A promissory note is only as strong as its weakest clause, and a missing line is exactly where disputes start. For a loan to a relative or a business advance, the same core clauses carry the weight, and skipping any one of them tends to surface at the worst possible moment. Here's the clause-by-clause checklist for a promissory note that actually holds up, and why each item earns its place. Work through it top to bottom before anyone signs, and treat any blank you cannot confidently fill as a signal to slow down rather than a detail to gloss over. The clauses below are ordered roughly the way they appear on a well-built note, so you can read straight down your draft as you go.

1. The parties, named in full

Every note opens by identifying the lender (payee) and the borrower (maker) with full legal names and current addresses. If a business is involved, use its registered name and note the signer's title. Where two people borrow together, state whether they are jointly and severally liable so you can pursue either one for the full amount rather than only their half. Why it matters: courts enforce debts against specific, identifiable people. Ambiguity about who promised to pay is a gift to a borrower looking for a way out, and a wrong or incomplete name can hand them exactly that.

2. The principal amount

State the exact sum lent, in both figures and words ($5,000 and five thousand dollars), plus the date and method the funds were delivered. If the money goes out in stages, describe the schedule of advances. Why it matters: the principal is the number every other clause builds on. Writing it twice, in numerals and spelled out, closes off the single-digit typo that turns a small loan into a big argument, and the delivery record answers any later claim that the funds never changed hands.

3. Interest, within the state usury cap

If the note charges interest, state the annual rate and whether it's simple or compounding. The critical constraint: the rate has to stay under your state's legal maximum. Exceed it and you've committed usury, which can strip out the interest or void the note. Check your figure with our usury limit checker before you sign anything. Why it matters: an unenforceable rate is the most common self-inflicted wound in DIY notes, and it is entirely avoidable with a two-minute check against the local cap.

4. Payment terms and schedule

Spell out how repayment works: the amount of each payment, how often it's due, the specific due dates, where payments go, and how each payment is applied between interest and principal. An installment note lays out a fixed schedule; a demand note leaves repayment open until the lender calls the loan. Why it matters: a vague schedule makes it nearly impossible to prove the borrower is actually behind, which is the first thing you have to establish to enforce anything.

5. Late fees and grace period

Define a grace period (commonly 10 days) and the late fee that applies once a payment misses it, either a flat amount or a modest percentage that stays within legal limits. Why it matters: a defined late fee creates a real, calculable consequence for slow payment and removes any argument about whether a fee was fair or improvised after the fact. It also gives a slow-paying borrower a concrete reason to stay current.

6. Acceleration clause

This clause lets the lender demand the entire unpaid balance at once if the borrower defaults, rather than chasing one missed installment at a time. Why it matters: without acceleration, a borrower can default repeatedly and you can only sue for each individual missed payment as it comes due. It's the difference between a collectible note and a slow-motion headache, and it is the clause DIY notes most often leave out.

7. Prepayment terms

State whether the borrower can pay early and whether doing so carries a penalty. Most personal notes allow penalty-free prepayment. Why it matters: silence here invites disagreement when a borrower wants to clear the debt ahead of schedule, especially if the lender was counting on the interest. Our loan payoff calculator shows both sides how early payments cut the total interest owed, which often settles the question before it becomes a dispute.

8. Collateral and security

For a secured note, describe the collateral in detail (make, model, VIN, serial number, or a legal property description) and record the lien where required. An unsecured note skips this and relies on the borrower's promise alone. Why it matters: a specific collateral description is what lets you actually claim the asset if the loan defaults. A vague one gives the borrower room to argue the collateral wasn't really pledged, leaving you with the word secured at the top of a note and nothing behind it.

9. Default definition and remedies

Define precisely what triggers default, typically a payment missed beyond the grace period, and list the remedies available: acceleration, late fees, and the right to pursue collateral or legal action. Why it matters: a clearly defined default event removes the guesswork about when your enforcement rights switch on, and it prevents a borrower from arguing that a late payment was never really a breach in the first place. List the remedies explicitly rather than assuming they are implied, because a note that names its consequences is far easier to act on than one that leaves them to interpretation.

10. Attorney fees and collection costs

Include a clause making the borrower responsible for reasonable attorney fees and collection costs if the lender has to enforce the note. Why it matters: without it, you generally eat your own legal bills even when you win, which can make a smaller note not worth suing over. A fee-shifting clause makes pursuing a defaulting borrower financially worthwhile and gives them a strong reason to pay before it ever reaches a courtroom.

11. Governing law

Name the state whose law governs the note. Why it matters: that choice fixes which usury cap applies and how long you have to sue. Under the Uniform Commercial Code, an action on a note payable at a definite time generally must start within six years of the due date, but the details vary by state, so naming the jurisdiction removes any doubt about which rules control the note.

12. Signatures and dates

The borrower must sign and date the note. Many lenders sign as well, and notarization or witnesses add weight on larger or secured notes. Why it matters: an unsigned note is just a draft. The signature, dated, is the moment the promise becomes binding, and the lender keeps the original while the borrower gets a copy. Fill in every blank before anyone signs, because gaps left open after signing are an easy target for a dispute.

Sources

• UCC Section 3-118 statute of limitations, Cornell LII
• 26 U.S. Code Section 7872 (below-market loans), Cornell LII