How to Sign a Promissory Note: 9 Steps

Table of contents:

How to Sign a Promissory Note: 9 Steps
How to Sign a Promissory Note: 9 Steps
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A promissory note is normally drawn up when a person is in the process of lending money to another and wants the debt to be paid off within a specified time period. A promissory note can also be used when a product or service is provided and an agreement is made that payment must be made by a set date.

Steps

Method 1 of 2: How to prepare an IOU

Write an IOU Step 1
Write an IOU Step 1

Step 1. Enter the date and loan amount or the agreed amount for the service or product provided

How much is the loan amount?

Write an IOU Step 2
Write an IOU Step 2

Step 2. Enter a due date for the loan repayment

When should your debtor repay you? If installments will be made, agree with him or her on specific dates for individual payments.

Write an IOU Step 3
Write an IOU Step 3

Step 3. Enter how much interest will be charged

If you are lending money to a friend or family member, you may feel that it is an exaggeration to ask for interest. But there are several good reasons why you might want to ask them, at least minimally:

  • If you are giving away money without asking for interest, you are losing liquidity. You lose your purchasing power (the ability to buy and invest the money you are lending) and inflation will cause your money to lose value.
  • If you ask your debtor for interest, he will be more likely to pay you back the money as quickly as possible. Think about it: interest is charged until the loan is fully paid off, so if your borrower keeps the money longer, they will be forced to pay more interest.
  • Don't ask for more than 15% or 20%. In fact, higher interest rates may not be allowed under the usury law, so set a reasonable interest rate and both parties should be more than happy.
Write an IOU Step 4
Write an IOU Step 4

Step 4. Sign the document

Include both your signature and your legal name.

Write an IOU Step 5
Write an IOU Step 5

Step 5. Make sure your debtor has also signed the document

Ask him to put his signature and legal name.

Write an IOU Step 6
Write an IOU Step 6

Step 6. If possible, try to arrange for a witness to be present (optional)

While a witness cannot create or cancel a promissory note or promissory note, it is useful if you need to go to court. A witness may be able to prove the existence of a verbal agreement.

Method 2 of 2: Know the legal implications

Write an IOU Step 7
Write an IOU Step 7

Step 1. A legally binding IOU can help if you go through a tax audit

It is therefore important to ensure that the promissory note has been drawn up as specified above, especially if you are loaning a large sum of money.

Write an IOU Step 8
Write an IOU Step 8

Step 2. Know the difference between a promissory note and a promissory note

Usually, it is difficult to prove the validity of a promissory note in court, as these are informal arrangements usually agreed without the benefit of a witness. Some IOUs limit themselves to mentioning the sum to be repaid, while bills of exchange declare an agreed amount in addition to the terms stipulated for repaying the debt and the consequences if the debtor does not keep faith with the commitment made.

  • If you are lending a large sum and are not comfortable with it, take the time to have an actual bill prepared. A promissory note would make things easier, compared to a promissory note, if you had to go to a court to recover the loan.
  • In order to take out a bill of exchange, you will need to have it authenticated by a notary. (Beyond that, it is essentially identical to an IOU). Authenticating a document means signing it in the presence of a notary certified by the Italian State and having it stamped with a seal of approval.
Write an IOU Step 9
Write an IOU Step 9

Step 3. If you have any doubts about the IOU, talk to a lawyer

A lawyer will be able to explain all the legal details of the promissory note to you and may offer advice on possible legal remedies should you have problems recovering the capital.

Advice

  • Make sure you keep your IOUs in a safe place.
  • If possible, make a copy of the document and give it to your debtor.

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