Should You Use a Nebraska Promissory Note For Personal Loans?
If a relative or friend comes to you in need of financial assistance, it's easy to dismiss the need for a promissory note. You trust them since you already have a personal relationship and the thought of them failing to repay you may never cross your mind.
However, it would be best to use a simple promissory note for a personal loan to ensure that the borrower knows what you expect from them.
Here is everything to know about Nebraska promissory notes for personal loans.
Why You Need a Promissory Note
Regardless of its nature, every loan agreement has a legal tax implication. Therefore, if a promissory note doesn't act well with your friend or relative, you should remind them that the money you lend them can have tax implications and you only want to put it on record just in case of IRS audits.
The note is proof that the money wasn't in your hands during a particular period. It also obliges the borrower to repay you on time while fulfilling other requirements such as the payment method and the amount you expect from them.
What to Include in a Personal Loan Promissory Note
You can check out an example promissory note for a personal loan here to get ideas of what to include in yours. You can personalize the note to suit your specific requirements, but make sure to include the following:
The Amount of the Loan
This component is critical for tax purposes. Be detail-specific to explain the amount offered to the borrower and whether you disbursed the funds once or in bits.
How the Loan Will Be Repaid
Perhaps you want the borrower to repay the money in a lump sum. This means that they should pay the loan in full. If you decide to follow this route, you should specify the repayment date and whether the amount includes interests.
Similarly, you may want the borrower to pay the amount in installments. They can pay it weekly, monthly or yearly depending on the loan amount and what works best for them. If you intend to charge interest, ensure to add it to each installment based on the principal and interest rate. Don't forget to include the specific dates when you expect to receive the first installment.
If You Will be Charging Interest
Many will agree that they are not comfortable charging interests on their family and friends. Nonetheless, if you don't include interests, the money becomes more a gift. You may also suffer losses in case of inflation, considering that the value of money keeps changing.The least you can do is consider the interest rates. Consider the borrower's financial condition to help you set a reasonable rate. Let it be known to them on the promissory note before handing over the funds.
Can You Secure a Personal Loan Promissory Note?
Whether to secure your promissory note or not mostly depends on the loan amount and how the borrower intends to use it. For instance, you can use a friend's title deed or car as collateral if the loan amount equals or is almost equal to the value of the car or real estate. You may also use intangible collateral such as trademarks and ownership rights if they plan to use the money for a business.
A promissory note doesn't mean that you don't trust the borrower when lending a personal loan. It is intended to reduce risk and protect the borrower against fraud. Luckily, you don't need to involve an attorney to acquire a promissory note. Get a free Nebraska promissory note template from our website. Getting a detailed form with everything you need to draft a personalized note takes a few clicks.