Example of a Vehicle Promissory Note

A vehicle promissory note outlines the terms of a loan for the purchase of a car. The best examples of promissory notes outline in clear, plain English the loan terms, as well as what happens if the agreement is breached. A vehicle promissory note comes in handy if you are audited by the IRS or if a dispute arises and you end up going to an attorney or judge for help. Complete the note by including both party's signatures and then keep the original and copies in a safe place.

TL;DR (Too Long; Didn't Read)

A vehicle promissory note should on a basic level include the names of the lender and borrower, vehicle identification information, the date and amount of the loan, loan terms including interest and payment schedule, registration and title information and any applicable warranties.

Putting Basic Points in Writing

Towards the top of the note, title the document "Promissory Note," date it, and write "Loan Amount" with the dollar figure of the balance that needs to be repaid. You can then begin to state the loan terms as follows:

"The undersigned hereby promises to pay (lender's name) the principal sum of (loan amount) according to the terms and conditions set forth in this promissory note."

"The principal sum of the promissory note and any accrued but unpaid interest is due and payable in (number of payments scheduled), which will be paid in monthly installments of (payment amount) beginning (date of first payment) and will be due and payable on (date of final payment).

If you charge interest on the loan, state the interest rate and how the interest is applied, for example:

"This promissory note will bear interest, compounded annually, at a rate of (annual interest rate) percent. All payments under this promissory note shall be applied first to the accrued but unpaid interest, and next to the outstanding principal."

You can use a banking resource such as Bankrate.com to help you determine the annual percentage rate to charge. Also, follow your state's laws regarding interest charges, as rates over 15 percent to 20 percent are prohibited, according to CreditCards.com.

Early Payoff Clauses

If the borrower can repay the loan amount in full or partially before the final due date, specify whether he will incur additional fees or a prepayment penalty. If not, state something to the effect of:

"At any time, the promissory note may be repaid in whole or in part without a prepayment penalty."

If a prepayment penalty applies, state that a prepayment penalty applies and state the amount of the lump-sum penalty.

You might also include an acceleration clause that makes the loan due and payable immediately if the borrower breaches her contractual duties. You can specify reasons for acceleration, such as failure to make on-time payments or failure to maintain insurance on the vehicle. A statement of acceleration may read:

"Upon the occurrence of (state the events that constitute acceleration), this promissory note is immediately due and payable."

Putting Collateral in Your Promissory Note

You might also secure the vehicle loan repayment with the borrower's personal property. For example, the vehicle itself, jewelry, a computer, or other tangible property of value that can be surrendered in lieu of full repayment for the vehicle, maybe used as collateral.

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