Using a Promissory Note for Loan Protection

by David Jenyns on April 9, 2008

A promissory note is a promise by the borrower to repay the lender on a specific date or dates, usually with interest. Strange as it may seem, the worst promissory notes have come from friends, and the closer the friend the worse the note. When a person is in need of funds he naturally turns to the people who can least refuse him – and these are often his friends.

For many years I have had a stock reply ready to friends who ask for loans: “That’s funny; I was just going to ask you for a loan.”

Since I then had the princely salary of $31.15 a week I felt I should let this friend in need borrow some money. Years later the same friend asked me for a loan of $1,500 to buy a business. There are some loans, which you must make to friends in need or to relatives. Sad as it might seem, it is always advisable to create a promissory note or other legally binding document before loaning anyone, even friends, a sizeable amount of money.

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