Do I need to charge interest at all?

For loans under $10,000 (the "small loan" exception), the IRS does not impute interest. Above that, see above. Even for small loans, charging some interest signals that this is a real loan rather than a gift — which matters in bankruptcy, divorce, and estate disputes.

Does the note need to be notarised?

A promissory note is enforceable without notarisation. Notarisation strengthens it as evidence and is required if the note is secured by real estate (a mortgage or deed of trust). For unsecured personal loans, notarisation is optional but recommended for amounts over $10,000.

What if the borrower doesn't pay?

Send a written demand letter (the note becomes the foundation). If unpaid, you can sue in small-claims court (typical limits $5,000–$25,000 depending on state) or higher court. Most states give 3–6 years to sue on a written promissory note. Keep records of every payment received and every reminder sent.

Can I forgive the loan later?

Yes, but a forgiven loan over $18,000 (2026 annual gift-tax exclusion) is a reportable gift requiring a Form 709. To formally forgive, sign a written cancellation; the borrower may also need to report cancellation-of-debt income on their taxes (with exceptions for genuine gifts).

Do I need to charge interest at all?

For loans under $10,000 (the "small loan" exception), the IRS does not impute interest. Above that, see above. Even for small loans, charging some interest signals that this is a real loan rather than a gift — which matters in bankruptcy, divorce, and estate disputes.

Does the note need to be notarised?

A promissory note is enforceable without notarisation. Notarisation strengthens it as evidence and is required if the note is secured by real estate (a mortgage or deed of trust). For unsecured personal loans, notarisation is optional but recommended for amounts over $10,000.

What if the borrower doesn't pay?

Send a written demand letter (the note becomes the foundation). If unpaid, you can sue in small-claims court (typical limits $5,000–$25,000 depending on state) or higher court. Most states give 3–6 years to sue on a written promissory note. Keep records of every payment received and every reminder sent.

Can I forgive the loan later?

Yes, but a forgiven loan over $18,000 (2026 annual gift-tax exclusion) is a reportable gift requiring a Form 709. To formally forgive, sign a written cancellation; the borrower may also need to report cancellation-of-debt income on their taxes (with exceptions for genuine gifts).

Personal Loan Agreement (Promissory Note)

Loan agreement between two individuals or families, with interest, repayment schedule, and default terms.

Customise

State / jurisdiction variant

Lender — full name

Lender — address

Borrower — full name

Borrower — address

Principal amount loaned (USD)

Loan date

Annual interest rate (%) — see IRS AFR

Payment schedule

Scheduled payment amount (USD; if monthly)

Maturity date (loan paid in full by)

Late fee (USD per missed payment)

Grace period before late fee (days)

Collateral (or "Unsecured")

Prepayment allowed?

Governing state

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PROMISSORY NOTE / PERSONAL LOAN AGREEMENT

═══════════════════════════════════════════════════════════════════════

LOAN DATE: June 19, 2026
PRINCIPAL: $15,000.00
INTEREST RATE: 4.500% per annum, simple interest
MATURITY DATE: June 1, 2031

LENDER: Sam Taylor
88 Pine Lane, Portland, OR 97214

BORROWER: Jordan Alex Taylor
482 Elm Street, Apt 3B, Portland, OR 97214

1. PROMISE TO PAY

For value received, Jordan Alex Taylor ("Borrower") promises to pay to the order of Sam Taylor ("Lender") the principal sum of $15,000.00, with simple interest on the unpaid balance at the rate of 4.500% per annum, in accordance with the schedule set out below.

2. PAYMENT SCHEDULE

Borrower shall pay $280.00 on the same day each calendar month, beginning the month after the Loan Date and continuing until the Maturity Date or until the Loan is paid in full, whichever is earlier.

All payments shall first be applied to accrued interest, then to principal. The unpaid balance plus all accrued and unpaid interest is due in full no later than June 1, 2031 (the "Maturity Date").

3. LATE FEE; GRACE PERIOD

If any payment is more than 10 days late, Borrower shall pay a late fee of $25.00, in addition to the unpaid amount and accrued interest.

4. PREPAYMENT

Yes — without penalty — Borrower may make additional payments toward principal in accordance with the prepayment terms above. All prepayments shall be applied to reduce principal.

5. COLLATERAL

This Loan is secured by: Unsecured. If "Unsecured," the Loan is supported only by Borrower's personal promise to repay.

6. DEFAULT

Borrower is in default if: (a) any scheduled payment is more than thirty (30) days overdue; (b) Borrower files for bankruptcy or becomes insolvent; (c) any collateral securing this Note is sold, transferred, or destroyed without Lender's written consent. On default, Lender may declare the entire unpaid balance immediately due and payable without further notice.

7. COSTS OF COLLECTION

If this Note is referred to collection or legal action, Borrower shall pay all reasonable costs of collection, including attorney's fees and court costs, to the extent permitted under the laws of the State of Oregon.

8. INTEREST AND USURY

The interest rate stated above shall not exceed the maximum lawful rate under the laws of the State of Oregon. If, for any reason, the rate stated would exceed that maximum, the rate shall automatically be reduced to that maximum, and any excess interest already paid shall be applied to reduce principal.

9. NO WAIVER

Lender's failure to enforce any provision of this Note on any occasion does not waive Lender's right to enforce that provision, or any other provision, on any other occasion.

10. GOVERNING LAW

This Note is governed by the laws of the State of Oregon, without regard to its conflict-of-laws provisions.

11. AMENDMENT

This Note may be modified only by a written instrument signed by both Borrower and Lender.

SIGNATURES

_______________________________ Date: ____________________
Jordan Alex Taylor (Borrower)

_______________________________ Date: ____________________
Sam Taylor (Lender)

About this template

Loans between family and friends are the most common — and most awkward — forms of personal lending. A written promissory note solves three problems at once: it clarifies the terms (so no one misremembers them later), it converts a gift into a documented loan (relevant for IRS, divorce courts, and bankruptcy), and it gives the lender legal recourse if the borrower simply stops paying. The most consequential clause is interest. The IRS publishes "Applicable Federal Rates" (AFRs) monthly; loans between related parties below the AFR are treated as partly a gift, with the imputed interest counted as taxable income to the lender and as a gift to the borrower. Charging at least the AFR (or the slightly higher "blended" rate, depending on the loan term) avoids these complications. The second key clause is what happens on default — collection costs and attorney's fees should be the borrower's responsibility, but state usury caps and consumer-protection statutes may limit what an unlicensed individual lender can charge. A signed promissory note is also useful evidence in a divorce or estate dispute, where the loan would otherwise look indistinguishable from a gift. For loans of $10,000 or more secured by real estate, additional state-law recording requirements apply.

When to use it

Lending money to a family member or friend.
Loans for a car purchase, a tuition payment, a small business start-up, or a real estate down payment.
Restructuring an old debt that was originally informal.
Documenting a loan for tax, divorce, or estate-planning reasons.
When the lender wants the option of suing for repayment without ambiguity.

What to include

Lender, Borrower, principal amount, loan date.
Interest rate at or above the IRS AFR.
Payment schedule and maturity date.
Late fee and grace period.
Collateral (or "unsecured").
Default, prepayment, and governing law clauses.

Frequently asked

For loans between related parties, charge at least the IRS Applicable Federal Rate (AFR) for the loan term. The AFR is published monthly at irs.gov. Charging below it triggers "imputed interest" rules — the IRS treats the difference as both income to the lender and a gift to the borrower, which is rarely what either side wants. Charging at or above AFR avoids the issue. For arms-length borrowers, charge a market rate (3–10% is typical for personal loans), capped by state usury limits.

⚠ Legal disclaimer. This template is informational only and is not legal or financial advice. Personal-loan terms are governed by state usury caps that vary widely — some states cap consumer loans at ~10-15% APR, others have no cap with consent or with a license; verify the current cap in the state where the loan is made. For loans over the state Statute of Frauds threshold (typically $500-$5,000) the agreement must be in writing to be enforceable. If interest is charged in a regular consumer-credit context, Truth in Lending Act disclosures (Regulation Z, 12 CFR Part 1026) may apply. Loans between family or friends should still be documented; interest is taxable income to the lender, and below-market loans can trigger imputed-interest rules under IRC §7872. Not legal or tax advice — consult a licensed attorney or CPA for material loans.

Jurisdiction: United States — Truth in Lending Act, 15 U.S.C. §1601+, and Regulation Z, 12 CFR Part 1026 (esp. §1026.18 disclosure requirements for closed-end credit) where the loan is made in connection with credit extended for personal/family/household purposes by a person who regularly extends consumer credit; state usury caps (50-state map; varies widely from no cap (e.g., DE, NM with consent) to ~10-15% annual on personal loans without a license); state Uniform Consumer Credit Code (UCCC, where adopted); CFPB UDAAP authority under §§1031 + 1036 of the Dodd-Frank Act, 12 U.S.C. §§5531 + 5536; UCC Article 3 governing the negotiable-instrument aspects of a promissory note.

Last reviewed: 2026-05

Reviewed by ScoutMyTool — consult a licensed attorney for binding use.