Repayment Schedules for Promissory Notes

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What Are Promissory Notes?

Promissory notes are written instruments that record the transaction details for a loan between two parties. They can be used for a variety of transactions, including financial investments, real estate transfers, personal loans, and business loans

Promissory notes create legally binding obligations between the borrower and the lender. Failure to fulfill the promises recorded in a promissory note can result in lawsuits and other consequences. In order to avoid disputes over promissory notes, it is important to understand the different repayment plans that can be used in such notes. Also, it is helpful to have an attorney draft and review the note to make sure that the note will be legally binding in a court of law if a dispute arises over the note. 

What Are the Different Kinds of Promissory Note Repayment Schedules?

It is important to understand what kind of repayment plan you will be using in the promissory note. Both parties should be absolutely clear on how much money is owed and in what manner it is to be repaid. That way, it will be less likely that the borrower will default on a payment due to a misunderstanding of the repayment plan.

Some common forms of repayment schedules are:

The type of repayment schedule chosen can have monumental effects on the total amount paid. If you are unsure of which type of payment is ideal for your situation, you may wish to consult with a lawyer for more advice. For example, a balloon-type schedule might be ideal for those starting a small business if they will have many initial start-up costs, but will be earning profit later on as the operations continue.

What Legal Terms Should I Know When Dealing with Promissory Notes?

At the very least, you should be familiar with the language that describes the different actors in a promissory note. Some of these legal terms include:

Finally, you should know what the word “consideration” means. For any agreement to be legally binding, it must be supported by consideration, or something of monetary value to be exchanged between the parties. In the context of a promissory note, the lender receives value from repayments, while the borrower receives value from the loan itself. 

What if I Am Unable to Make Payments?

If, as a borrower, you are unable to make payments, you should consider requesting to change your repayment schedule. A different type of plan may be more suitable for you and your loan. Most promissory notes are negotiable, which means that they can be changed later on so long as the changes are supported by mutual consideration and agreed upon by all parties. 

You should avoid defaulting on a payment at all costs. You could be required to pay the loan off in its entirety for missing payments. Also, the lender is often allowed to place a lien on your property in order to secure funds for missing or late payments. 

Should I Hire a Lawyer for Promissory Notes?

A competent business lawyer can help you draft your promissory note. If there are disputes over repayment schedules, your attorney can help you negotiate to obtain your desired plan. Also, in the event that a lawsuit arises, your lawyer will be available to help argue your claim in a court of law.  

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Last Modified: 05-27-2014 03:40 PM PDT

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