What is a Simple Promissory Note?

A simple promissory note is a basic agreement between two parties, referred to as the maker and the payee. The maker, will pay back a specified amount of money to the payee, or lender, on or before a specified date or when receiving a request from the payee to do so. This differentiates it from a simple IOU, which doesn’t specify a time period for payback of the borrowed amount. A simple promissory note usually is for a smaller amount of money and typically only requires very basic information.

Most simple promissory notes, referred to as a note payable in the accounting world, are used between friends, family, and for smaller business loans administered by banks. They are a minimal, basic agreement that typically includes at least the principle amount of the loan, any interest that will be added, and the date by which the loan needs to be repaid. Most promissory notes will add more pertinent information as well, such as addresses and social security or driver’s license numbers. Some will include extra conditions, such as what would occur if the maker dies or what will happen in the case of default. Regardless of what information is added, both parties need to sign for it to be binding.

Like loans, simple promissory notes can be secured or unsecured. Secured notes will include some type of property put up as collateral and are more often used in less-personal business arrangements. Unsecured notes do not have this requirement, and are more frequently seen between relatives or friends. Regardless, both secured and unsecured simple promissory notes are considered legal contracts if properly completed.

The origin of the simple promissory note has been traced back several thousand years. It has not changed all that much in that time except for perhaps the addition of the maker's and possibly the payee's address and other unique, identifying information. Throughout history, the simple promissory note has even been used in some countries and jurisdictions as legal tender, although it is not very prevalent today.

One advantage other than ease of using a simple promissory note is the availability of samples for download. Many legal sites have sample documents that are either very basic or specific to a local jurisdiction. Most downloads are free although if you want a more specific note, it might cost a small fee. When any money is being loaned, even between friends and family, there is no reason to not sign a simple promissory note. It can avoid confusion, anger, and possible legal expenses.