Making an I.O.U. Legal: Promissory Notes

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Education for Justice
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If you borrow or loan money, it is a good idea to make a promissory note. A promissory note is a written agreement to pay back money to a person or a business. The promissory note should have details about things like when and how the money is paid, if there is interest on the amount owed, and what happens if the money isn’t paid back.

Promissory notes are also called notes payable or negotiable instruments.

If you are the person who owes the money, you are the promisor, maker, or obligor.

If you are the person who is lending the money, you are the promissee, payee, or obligee.

The money that is owed is called the principal.

If the promissory note is done right, a court can enforce it. See below, “What should be in a promissory note?” Promissory notes are used for personal loans, business loans and real estate transactions.

A promissory note is different from an I.O.U. because a promissory note says a person will pay the money back and lays out how and when it will be paid and other details. An I.O.U. just says that a person owes a debt to someone else.