Promissory notes are used in the state of California whenever it comes to lending and borrowing a significant amount of loans. This document establishes in writing a proposed structure for loan repayment.

Under California promissory note, the borrower is entitled to pay back the loan to the lender in full along with the interest rate (if any). Promissory note California acts as a first legal reference in case any issue arises with regards to the loan payment.

Read on to know what California promissory note template is. In this article, we will be discussing when this promissory note should be used and how to write a California promissory note.

What Is a California Promissory Note?

California promissory note refers to an agreement between two parties with regards to the loan. This written document is legally binding between the lender and the borrower. Precisely, it explains the total amount of money loaned, interest rate, loan repayment structure, late fees, etc.

Promissory note California is used to evidence the existence of money loaned to the borrower by the lender. California promissory notes can be secured and unsecured. Both parties, including lender and borrower, may specify whether the loan will be secured or unsecured.

California Secured Promissory Note

In case a borrower defaults on a loan payment, California secured promissory note enables the lender to take back any specific asset or property as collateral as a loan payment.

California Unsecured Promissory Note

Whereas in the California unsecured promissory note, the lender is unable to claim for collateral if the borrower fails to make a loan repayment. However, if the borrower does not satisfy the loan, the lender will need to seek restitution in a small claim court to acquire the money loaned.

Of note, considering the interest rate, under Article XV, Section 1 of the California constitution, the maximum interest rate that the lender may charge is 10% per year in both secured and unsecured notes.

When Should You Use a California Promissory Note?

Broadly speaking, promissory notes can be used in place of loan agreements between lenders and borrowers. However, the circumstances in which you use a California promissory note can vary based on the type of loan, relationship with the borrower, and loan repayment structure.

Promissory notes are used in replacement of the loan agreement because they are quite simple and easy to use. In contrast, loan agreements are more rigid in terms of loan payment. Also, it includes various stipulations in case the borrower fails to repay the loan.

To avoid complexity, you can use the California promissory note template which has simple terms outlining a simple payment plan. Furthermore, this promissory note is best to use whenever you have to give simple loans with a fixed monthly payment.

If both parties do not use a promissory note, the lender can be at an increased risk of losing his/her loaned money. This is because there will be no signed legal documentation to prove that the borrower had to repay the loan within the agreed-upon timeframe.

How to Write a California Promissory Note?

Before writing a California promissory note, you are advised to determine whether a promissory note is secured or unsecured. Make sure you give a proper title to your document either as ‘California Secured Promissory note’ or ‘California unsecured promissory note’.

Steps Involved:

Mainly, it involves 5 steps in writing a California promissory note.

  • In the first step, you will need to download this legal document and list the start date along with the legal names of both borrowers and lenders, their email address, the principal amount of the loan, and the interest rate.
  • In the second step, you are required to list the payment structure, whether the loan will be paid in weekly or monthly installments. Also, you should include the amount of payment that the borrower will be required to pay. Moreover, this section should include information about late fees.
  • Thirdly, you must provide information about the level of security such as whether or not the borrower is providing collateral to the lender. This section is specifically included in California secured promissory note template.
  • In step four, you need to review various sections including interest due in case the borrower defaults on loan, allocation of payment, prepayment, conflicting terms, waiver, non-waiver, notice, and so on.
  • Lastly, in the fifth step, both parties, including the lender and borrower, need to sign the agreement. This section must include signatures of both parties along with the date, month, and year.
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In brief, it is highly recommended to have legal documentation whenever lending money to another individual or business.

California promissory note ensures that both lender and borrower are on the same page, and both parties understand their rights regarding lending and borrowing of money. Besides, it acts as a reference point in case any payment-related issue arises in the future.

At CocoSign, we have a great template for California promissory note along with other different types of promissory note templates. So, stop waiting and download any template that best matches your needs.


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