If you want to lend money to your family member or borrow money from your friend, you will find it beneficial to keep a legal record of lending or borrowing loans.

If you set out a schedule for loan repayment and write down specific terms and conditions, it is considered as a promissory note. There are two kinds of promissory notes which include ‘secured note’ and ‘unsecured note’.

If you are in California, you should use unsecured promissory notes when you are lending a loan to your family, friends, or any business. An unsecured note requires the borrower to reimburse the loan to the lender within a specified timeframe.

What Is a California Unsecured Promissory Note

California unsecured promissory note refers to a document that establishes the structure for a loan repayment between two lenders and borrower. It is a legally binding contract between both partiese which agree upon specified terms regarding the loan.

Unsecured promissory note California does not require the borrower to pledge any collateral to get the loan if the borrower defaults on the loan. Also, the lender will need to file a civil lawsuit in order to get back loan repayment.

One thing that differentiates an unsecured note from a secured promissory note is a risk. In an unsecured promissory note California, the lender is at increased risk throughout the contract.

This is because an unsecured note lacks a guarantee whether the lender will get back his/her money loaned or not if the borrower fails to pay back the loan. Therefore, this promissory note is reserved for borrowers with good credit history and high net worth.

What Is Included in a California Unsecured Promissory Note?

California unsecured promissory note is a straightforward and simple legal document under which the borrower is obliged to repay the loan to the lender. This document contains specific terms and conditions regarding loans along with its repayment structure. Other information that is included in California unsecured promissory note are as follows:

  • Full names of both borrower and lender
  • Address of both borrower and lender
  • The total amount of money that is being loaned
  • Accrued interest (if any) as per Article XV of California statutes, the interest rate should not exceed 10%.
  • Information regarding payment method- whether installments will be made biweekly, weekly, or monthly.
  • Signatures of both parties along with the witness’s sign and date to bring the agreement into effect.

Pros and Cons of California Unsecured Promissory Note

Whether you are a lender or a borrower, there are potential pros and cons of using a California unsecured promissory note.

Pros for Borrower

  • If you need a smaller amount of money, an unsecured promissory note is safer to use as it does not require any collateral.
  • If you don’t have sufficient credit history, an unsecured promissory note can be used to secure a loan from the lender.
  • Using an unsecured promissory note provides lenders with a repayment assurance.
  • There is no need to pledge any asset or property as collateral.

Cons for Borrower

  • You will need to pay a high-interest rate as opposed to a secured loan.
  • If you lack a good credit history, you will need to pay higher accrued interest.
  • You might also find it hard to obtain a loan due to poor credit scores.
  • If you lack funds to repay the loan, you might end up in small claim courts in case of default.

Pros for Lender

  • Lenders can get great returns due to the higher interest rate involved in unsecured promissory note California.
  • Lenders can also sell or borrow against the unsecured promissory note in case he/she needs money.

Cons for Lender

  • The unsecured promissory note has a higher risk for the lending party as compared to any other investments.
  • The lender will need to file a lawsuit against the borrower in case he/she fails to make a loan repayment. Collecting loan money through filing lawsuits is a time-consuming process that requires both time and energy of the lender.
  • It is also a difficult task for the lender to sell an unsecured promissory note as it is difficult to find a note buyer.
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Conclusion

This article has highlighted the importance of California unsecured promissory note along with its pros and cons. Now both parties are recommended to use this unsecured promissory note depending on its suitability for lender and borrower.

If you want to download great templates for California unsecured promissory note, you can check it on our website CocoSign. In addition, we also have different templates for other types of promissory notes.

Disclaimer

CocoSign represents a wide collection of legal templates covering all types of leases, contracts and agreements for personal and commercial use. All legal templates available on CocoSign shall not be considered as attorney-client advice. Meanwhile, CocoSign shall not be responsible for the examination or evaluation of reviews, recommendations, services, etc. posted by parties other than CocoSign itself on its platform.