Is North Dakota Promissory Note Useful When Loaning a Friend?
Take a scenario where a friend asks you for financial help to start a business or buy a car. You are in a position to help, but you aren't sure if they will pay you back. You go ahead to give the money anyway, only to regret it later when they fail to fulfill their payment obligation. You are lost and don't know what to do to get your money back.
Such situations happen every day and besides leaving you broke, they strain relationships you had worked so hard to build. Although it's normal to trust a friend with a loan, it will help not to leave anything to luck by issuing a promissory note to oblige them to pay. Here we discuss the essential components of a promissory note in North Dakota for a loan to a friend.
What is a North Dakota Promissory Note?
Perhaps you are wondering what a promissory note is and why you need one. A promissory note, also known as a promissory letter, is a simple, legally binding document that outlines a borrower's promise to repay a loan on the specified date. The paper is, in most cases, mistaken for an IOU, but a promissory note is less complex and only outlines the basics of the loan. A promissory note doesn't signify a lack of trust between friends. It comes with some benefits, including:
Helps during Tax Audit
If you undergo an IRS audit, you should account for every penny to avoid harming your tax filing. A promissory note comes through for the lender to show that they gave out a specific portion of their income as a loan. Similarly, a borrower can use the letter to show that part of their money or assets are from a loan.
Just because they are your friends doesn't guarantee that they won't break your trust. Broken promises are common, especially where money is involved. A promissory note makes it easier for you as the lender to seek legal assistance if the borrower doesn't meet the cut of their deal. It is enough evidence to prove the loan transaction.
Clauses to Include in a North Dakota Promissory Note
A well-drafted and valid promissory note should include the following provisions:
Amount of Money Owed
This may sound like an obvious clause, but if forgotten, it kills the primary purpose of the promissory note. Common disputes in friendly loans revolve around the money owed, so you want to clearly state the principal and interest if applicable to avoid problems later on.
The Date of PaymentOutline when you want the borrower to refund the money. It could either be before the date or on a specific date.
Late Payment Interest
If the borrower fails to settle the loan on time, the promissory note should indicate if you intend to incorporate a late payment fee. The interest could be a percentage of the total money owed.
What if the Borrower Defaults on Payment?The promissory note should state what will happen if the borrower doesn't make the payment. What are your rights as the lender? You may add a late payment fee, or if the promissory note was secured, you could foreclose the collateral to cover the loan.
The only way to bind the borrower is to have them sign the document. The lender should also sign the note to show that they agree with everything outlined in the promissory letter. You may also include a witness signature for extra sealing.
Are you looking for a free personal loan promissory note? Download the ready-to-use form with all the necessary areas of entry. You only need to fill the blank spaces and there, you have a legally binding North Dakota promissory note.