Unsecured promissory note refers to any loan that is not secured by any collateral property such as title deed or car logbook. Here, the loan is made strictly on the borrower’s ability to repay. It is usually much risky since there is no guarantee of loan repayment. However, the lender simply has the trust of getting the loan paid appropriately. Contrariwise, secured note is any debt that is collateralized with real property. In case the borrower fails to repay the loan, you can sell his/her property to settle the loan. Therefore, the main thing that differentiates the unsecured and secured promissory notes is the collateral property.
What to Include?
The following topics should be considered when writing an unsecured promissory note.
- Borrower’s promise to pay. Here, the borrower promises the amount they need to pay as well as the interest generated. More, the borrower also includes the addresses of the note holder from which the loan should be paid.
- Interest. The borrower agrees on the annual amount of interest they will be paying until the loan is settled.
- Payments. The borrower agrees on the amount and date of the month where they will be making monthly payments. In case of any delays, the borrower will always liaise with the note holder on the specific date to make the payment.
- Borrower’s right to prepay. The borrower highlights their rights towards repayment of the loan. What’s more, the borrower highlights conditions under which he/she may be charged for incomplete monthly repayment.
- Loan Charges. Here, the conditions under which loan charges apply are well stipulated.
- Borrower’s failure to pay as required. In case the borrower fails to make monthly repayment as needed, they will have to pay a percentage penalty to the note holder. Also, they will be held as defaulters if they fail to satisfy each monthly payment.
- Giving of notices. The main channel of giving notices is through the delivery or first-class mail to the addresses stated in the agreement.
- Obligations for persons under this note. Every person that signs the note is obligated to keep all the promises. This includes the lender, borrower, guarantor, surety, or endorsers. They must all play their roles as agreed in the note.
- Waivers. The lender has the obligation to waive the rights of presentment and notice of dishonor. Conclusively, there should be witnesses and seals of the undersigned.
Can Promissory Note Hold up in Court?
Yes, a promissory note can hold up in court. It is a legally binding agreement which is either secured or unsecured. In as much as it may be challenging to get paid in an unsecured note, it may still act as a predicate notice for lawsuit eviction. However, it is always recommended to seek further advice from a licensed legal attorney.
How enforceable is an unsecured promissory note?
If the unsecured promissory note is breached, some legal remedies can be followed. However, taking this path can be problematic since there is no promise to turn over any asset in case of defaults. Unsecured promissory notes can be enforceable if you file a court petition. It is not always guaranteed to get your repayment back. Nonetheless, if the court rules in the lender’s favor, the borrower will have to repay.