A promissory note is a legally binding document that contains the details of a loan transaction. A promissory note for car loan is an agreement by the buyer and the seller of the car that states the amount of the car loan and the details of how it will be paid. This will include any interest charged and the payment schedule. The note should also state any grace periods for late payments and penalties for defaulting or not making required payments.
A promissory note is different from an IOU. Even if an IOU is notarized, it may not be legally binding and it will most likely not contain specific repayment details. With a loan as large as a car loan, a promissory note will be required. This gives the lender proof that the debt exists.
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It is necessary for the loan to be completely repaid and for the seller to be the lender to the new borrower. It is also recommended to sign the document in front of a Notary Public who will sign and seal the document. Copies of the Note should be given to the borrower and lender as well as a third party.
Below is a sample promissory note for car.
PROMISSORY NOTE
Name and Address of Borrower
Name and Address of Lender
Principal Amount of Car Loan
This Note is to document the sale of Make of Car, VIN number, model, year of manufacture owned by the Lender, who has the legal right to sell the car to the Borrower.
• The above Borrower promises to pay the above Lender the principal sum of AMOUNT OF LOAN with interest at the rate of PERCENTAGE OF INTEREST per annum that is calculated every year and not in advance.
• The Borrower will make monthly payments of AMOUNT on or by the fifth day of each month and this Note will be repaid in full on DATE at which time the Lender will transfer the title of the car to the Borrower with a recording of the odometer reading.
• This Note is constructed in accordance with the laws of the State of STATE.
• As long as the Borrower is not in default of payments, Borrower may pay the outstanding balance owed on the Note to the Lender without penalty or further bonus
...is not a personal covenant it must also be done in writing and notice must be given to the covenantor under s.136 LPA 19259.
In an open market if notes are traded the quoted prices and the market rate of interest of the notes should come up with enough evidence to get the present value. An interest rate is guessed that may be slightly different from the stated rate. This may have an effect on the financial statement that is material if the face value of the note is large enough and the term of it is long.
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