Secured Promissory Note Template

Secured vs Unsecured

In contrast, an unsecured promissory note has no collateral. The borrower is still legally obligated to repay the loan. If they default, the lender must pursue repayment through collections or legal action, without the option to seize any assets.

Terms in a Secured Promissory Note

• Parties Involved: Full legal names and addresses of both borrower and lender.
• Loan Details
• Amount borrowed
  • Interest rate (often lower due to collateral)
  • Payment schedule (lump sum or installments)
  • Maturity date (when the loan must be fully repaid)
• Collateral (“Security”): A valuable item pledged by the borrower. Be specific when describing the asset: e.g., “2015 Ford F-150 XLT, White, 122,650 miles, VIN #…”
• Late Fees: A defined penalty is imposed if a payment is missed or delayed.
• Acceleration Clause: Allows the lender to demand full payment immediately if the borrower defaults.
• Default Interest: If unpaid, the outstanding balance may accrue interest at a capped state-set rate.
• Prepayment Option: Borrower can repay early, penalty-free or with a small prepayment fee.
• Co-Signer (Optional): A third party who agrees to be responsible if the borrower fails to pay.
• Attorneys’ Fees: The borrower may be required to cover legal costs if the lender has to collect after a default.
• Waivers & Enforcement: This includes the borrower’s waiving rights to notice and affirms that the lender’s leniency once doesn’t mean forever.
• State Laws: Specifies the state where the loan takes place.
• Signatures: Both the borrower and the lender must sign and date. Witnesses or notarization adds an extra layer of protection.
• Severability: If any provision is deemed invalid, the rest of the agreement remains enforceable.
• Integration: This note represents the entire agreement; no outside terms or discussions are legally binding unless added by amendment.
• Conflicting Terms: If there’s any contradiction between this note and other agreements, this note takes precedence.
• Notice: Specifies how formal communications must be delivered (e.g., by certified mail or email).
• Execution: States that the borrower, not the co-signer, holds primary responsibility for repayment; may include signature requirements.
• Governing Law: Identifies which state’s laws will apply in case of a legal dispute.

How to Make a Secured Promissory Note (Step-by-Step)

Step 1 – What Is Being “Secured”?

Ensure there’s a legitimate reason to secure the loan. For example, if you’re lending a significant sum to someone with a risky credit history, you might want to secure the loan with collateral. The key is that the asset used as collateral must be equal to or greater in value than the loan. When listing the asset, be as specific and descriptive as possible.

Step 2 – Define the Terms

The strength of any promissory note lies in its clearly defined terms. These terms serve as the foundation of the agreement, outlining the expectations, obligations, and protections for both the lender and the borrower. 

When drafting a secured promissory note, the lender and borrower should work together to discuss and confirm the repayment timeline, interest structure, late payment policies, and how collateral will be handled in case of default. While secured notes can be used in casual and formal lending situations, clarity is key. 

Step 3 – Execute the Note

To finalize the agreement:

• Include complete collateral details (make, model, serial number, etc.).
• File a UCC Financing Statement to officially declare the lender’s interest in the asset (optional but recommended).
• Both parties must sign and date the agreement. For higher-value loans, it’s wise to have the note notarized or signed in the presence of witnesses.