When you work a job, you typically get paid financial compensation in the form of a paycheck. When you borrow money from a bank, you typically sign a loan agreement that lays out the terms of repayment. These types of arrangements are common in the business world, but what about when you lend money to or borrow money from a friend? Is there a formal agreement that can be used to keep everyone on the same repayment schedule?

A promissory note may be the solution to these challenges as a promissory note is a written agreement that states that one party will pay another. This type of agreement can be written using formal or informal language, and the terms of a promissory note between friends can either dictate that money will be exchanged immediately or at a future date.

The Advantages of a Promissory Note

A promissory note between friends can be a solid way to keep all parties to a financial agreement on the same page. Instead of going through an attorney and drafting up a formal contract, using a promissory note may be more expedient.

When a promissory note is used to promise repayment of borrowed money between friends, the instrument serves as a way to keep everyone honest and involved in the process to avoid awkward exchanges in the future. Without some type of written agreement in place, friendships can be damaged by non-repayment of loaned money.

Is a Promissory Note a Legal Agreement?

A promissory note can be considered a legal document, but the language contained in the note matters. If a promissory note does not explicitly spell out the terms of a financial agreement, it may be argued that the note is invalid. This is more of a concern when borrowing money from a professional lender as opposed to borrowing money from friends, but the principle remains the same – a promissory note is a legal document.

As a result, all parties to a lending agreement are encouraged to obtain and retain a copy of any promissory notes. Having a copy of a promissory note keeps everyone honest, and it can also be invaluable should legal action need to be taken in the future.

Author Resource:-

Emily Clarke writes about sending payment reminders, track payments, take care of legal docs and more. You can find her thoughts at promissory notes blog.