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Unsecured Promissory Note 1

Unsecured Promissory Note

    An Unsecured Promissory Note is a promise by a borrower to repay you the total sum of borrowed money plus interest before a given date. By using our Unsecured Promissory Note sample, you can prepare a lawful agreement to lend money without collateral whenever you need for personal or business use. Get the template today and create binding contracts with your borrowers.

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Unsecured Promissory Note
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Unsecured Promissory Note

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It is no secret that promissory notes are the oldest form of investing. We know that promissory notes are of two types unsecured and secured promissory notes. In this post, we will discuss a type of promissory note that is an unsecured promissory note.

Whether you are a lender or a borrower, you must understand about unsecured promissory notes. You also need to know what are its advantages and disadvantages before using an unsecured promissory note.

What Is an Unsecured Promissory Note?

An unsecured promissory note refers to a document that enables a lender to detail a sum of money that is given to the borrower. Of note, the lender gives money to a borrower that is to be reimbursed along with interest (if any).

As the name suggests, an unsecured promissory note does not have any security in case debt or borrowed money is not paid by the borrower in full. In other words, an unsecured promissory note does not guarantee any property or asset to the lender.

An unsecured promissory note is, therefore, a simple IOU (I Owe You) as it is not backed by any collateral. The lender considers the borrower a credible entity without any security. The lender does not receive anything in return if the borrower defaults on his/her payment.

Also, there are no prepayment penalties involved in the unsecured promissory note. Moreover, payment in this type of note is structured on either a weekly or monthly basis.

Download a Customizable Unsecured Promissory Note Template Now

Personal and business loans with no collateral put you at risk of losing your money if the borrower defaults. Our Unsecured Promissory Note template is well-researched by lawyers to enable the easy creation of legally binding lender-borrower contracts. Download it for free and start editing immediately.

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When Do You Need an Unsecured Promissory Note?

An unsecured promissory note can be used for various purposes such as student loans, business loans, vehicle loans, mortgage, or personal loans between friends and family.

Unsecured promissory note templates should be created whenever you want to lend a huge amount of money to another person or business.

If you are starting a business and need a large amount of money to invest in your start-up, you will need an unsecured promissory note. This is an obligation for the borrower to repay the money loaned.

Through this agreement, one party (borrower) agrees to pay a specific amount of money to another party (lender). Moreover, the lender who uses an unsecured promissory note is advised to take into account the credibility of the borrower right before signing the agreement.

Advantages and Disadvantages of Using Unsecured Promissory Note

Unsecured promissory note also encompasses some advantages as well as disadvantages. Whether you are a holder of an unsecured promissory note or a borrower, make sure you are aware of its pros and cons before using this promissory note.

If you are a lender (promissory note holder), you should note the advantages and disadvantages of using unsecured promissory note which are as follow:

Advantages for Lender

  • It may provide the lender with a higher interest rate and therefore, good returns in comparison to keeping your money in a bank account.
  • You may sell as well as borrow against promissory notes whenever you need money.

Disadvantages for Lender

  • Unsecured promissory note involves great risk as compared to other investments. This is because this note is not backed by collateral.
  • In case of the borrower’s default to make a loan repayment, the lender will need to file a lawsuit to collect a loan.
  • Selling an unsecured promissory note is not an easy task as there are quite a few buyers of this note. Moreover, the buyer requires a huge discount as opposed to a secured promissory note.

If you are a borrower using an unsecured promissory note, make sure you know its pros and cons.

Advantages for Borrower

  • You can use this promissory note to borrow money specifically when you lack sufficient credit rating to get a business loan from any lending institution or bank.
  • It gives repayment assurance to your lender.
  • You can avoid pledging any of your assets or property as collateral.

Disadvantages for Borrower

  • You might be required to pay a higher interest rate to your lender as compared to a secured note.
  • You might face loan default in case you lack funds to make a loan repayment. Besides, the lender may take you to court to obtain loan payment.
Download a Customizable Unsecured Promissory Note Template Now

Personal and business loans with no collateral put you at risk of losing your money if the borrower defaults. Our Unsecured Promissory Note template is well-researched by lawyers to enable the easy creation of legally binding lender-borrower contracts. Download it for free and start editing immediately.

Get started now Download template

Conclusion

Unsecured promissory notes are relatively simple as opposed to other loan agreements and offer significant advantages to both lender and borrower. However, unsecured promissory note also encompasses disadvantages for both parties.

Before using an unsecured note, make sure you have detailed information about it to avoid future complications in making loan repayment. If you are looking for great unsecured promissory note templates, visit our website CocoSign.

DOCUMENT PREVIEW

STANDARD PROMISSORY NOTE(UNSECURED)

 

 

 

ON THIS ____ DAY OF ____________________, 20___, _________________________________ [Name of Borrower], of _______________________ [Address of Borrower], hereinafter known as the “Borrower” promises to pay to _________________________________ [Name of Lender], of _______________________ [Address of Lender], hereinafter known as the “Lender”, the principal sum of ________________________ Dollars  ($__________________), with interest accruing on the unpaid balance at a rate of _______________ percent (___%) per annum beginning as of the date above in the manner that follows:

 

  1. PAYMENTS: Borrower shall pay (check the applicable box)

 

☐ - NO INSTALLMENTS.  Payment in full of principal and interest accrued shall be payable on the due date.

 

☐ - INSTALLMENTS of principal and interest in the amount of ________________________ Dollars ($__________________)

 

  ☐ - INTEREST ONLY PAYMENTS on the outstanding principal balance.

 

If installments or interest only payments are checked above, such installment payment shall be due and payable on the (check the applicable box)

 

☐ - ____ day of every month beginning on the ____ day of ____________________, 20___.

 

☐ - Every week beginning on the ____ day of ____________________, 20___.

 

  1. DUE DATE: The full balance on this Note, including any accrued interest and late fees, is due and payable on the ____ day of ____________________, 20___.

 

  1. INTEREST DUE IN THE EVENT OF DEFAULT: In the event that the Borrower fails to pay the note, in full, on the due date or has failed to make an installment payment due within 15 days of the due date, unpaid principal shall accrue interest at the rate of _______________ percent (___%) per annum OR the maximum rate allowed by law, whichever is less, until the Borrower is no longer in default.

 

  1. ALLOCATION OF PAYMENTS:  Payments shall be first credited any late fees due, then to interest due and any remainder will be credited to principal.

 

  1. PREPAYMENT:  Borrower may pre-pay this Note without penalty.

 

  1. LATE FEES:  If the Lender receives any installment payment more than ____ days after the date that it is due, then a late payment fee of _________________ shall be payable with the scheduled installment payment along with any default interest due.

 

  1. ACCELERATION: 

If the Borrower is in default under this Note and fails to make any payment owed and such default is not cured within ____ days after written notice of such default, then Lender may, at its option, shall declare all outstanding sums owed on this Note to be immediately due and payable, in addition to any other rights or remedies that Lender may have under state and federal law.

 

  1. ATTORNEYS’ FEES AND COSTS: Borrower shall pay all costs incurred by Lender in collecting sums due under this Note after a default, including reasonable attorneys’ fees. If Lender or Borrower sues to enforce this Note or obtain a declaration of its rights hereunder, the prevailing party in any such proceeding shall be entitled to recover its reasonable attorneys’ fees and costs incurred in the proceeding (including those incurred in any bankruptcy proceeding or appeal) from the non-prevailing party.

 

  1. WAIVER OF PRESENTMENTS: Borrower waives presentment for payment, notice of dishonor, protest and notice of protest.

 

  1. NON-WAIVER:  No failure or delay by Lender in exercising Lender’s rights under this Note shall be considered a waiver of such rights.

 

  1. SEVERABILITY:  In the event that any provision herein is determined to be void or unenforceable for any reason, such determination shall not affect the validity or enforceability of any other provision, all of which shall remain in full force and effect.

 

  1. INTEGRATION:  There are no verbal or other agreements which modify or affect the terms of this Note.  This Note may not be modified or amended except by written agreement signed by Borrower and Lender.

 

  1. NOTICE:  Any notices required or permitted to be given hereunder shall be given in writing and shall be delivered (a) in person, (b) by certified mail, postage prepaid, return receipt requested, (c) by facsimile, or (d) by a commercial overnight courier that guarantees next day delivery and provides a receipt, and such notices shall be made to the parties at the addresses listed below.

 

  1. EXECUTION: The Borrower executes this Note as a principal and not as a surety.  If there is more than one Borrower, each Borrower shall be jointly and severally liable under this Note.

 

SIGNATURE AREA

 

 

This agreement was signed the ____ day of ____________________, 20___ by the following:

 

 

_______________________                                                _______________________    

Lender’s Signature                                                               Borrower’s Signature

 

 

_______________________                                                _______________________    

Lender’s Printed Name                                                        Borrower’s Printed Name

 

 

_______________________                                                _______________________    

Witness’s Signature                                                             Witness’s Signature

 

 

_______________________                                                _______________________    

Witness’s Printed Name                                                       Witness’s Printed Name                                                        

 

 

 

 

 

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