Promissory Note
A Promissory Note is a document in which one promises to repay money that has been Borrowed. In order for this Promissory Note to be a legally binding contract, it must be in writing and signed by the one borrowing the money. This document must provide certain language describing how and when repayment of the loan shall be made.
It’s a good idea to have a binding Promissory Note, even if the parties involved are relatives. Documenting the loan can head off misunderstandings about whether the money is a loan or gift, when it is to be repaid and how much interest is owed.
Four Common Methods of Repayment:
* Equal Monthly Payments - (fully amortized including principal and interest)
* Equal Monthly Payments WITH a Final Balloon Payment
* Interest-Only Payments WITH a Final Balloon Payment
* One Single Payment of Principal and Interest
*Note: As long as both parties agree there are no set rules concerning how the money is to be repaid.