A promissory note is a legal document that confirms a debt between lender and borrower. The document sets out the amount, terms and conditions of the loan and acts as a security for both parties.
Why is a promissory note important?
A promissory note provides clarity on what has been agreed between the parties and serves as documentation in case of disagreement or non-payment. For the lender, it allows them to document their claim, and for the borrower, it creates transparency about the terms of the loan.
In business, letters of credit or similar loan documents are often used as part of credit scoring and risk management as they show the financial obligations of a customer or business partner.
What should a promissory note contain?
A promissory note can vary in scope, but should as a minimum contain:
- Lender and borrower information (name, address, CPR/CVR number)
- Loan size and currency
- Agreed interest and repayment terms
- Conditions in case of default
- Signature or digital signature from both parties
- Date of conclusion of the agreement
It is recommended to make it clear that it is a loan and not a gift. Without clear conditions, the tax authorities may in some cases consider the amount as a gift, which may have tax consequences.
Digital edition
Today, many loan documents are prepared digitally and signed with MyID or other electronic signature. This makes the process faster, more secure and easier to document.
When is it most often used?
A promissory note is typically used in private loans between family or friends where a clear framework is needed. It is also used in business when companies lend money to each other or when larger amounts require security for repayment.
Benefits for both parties
A written document provides peace of mind. The borrower can be sure that the terms won't change along the way, while the lender has legal proof of their claim. This reduces the risk of misunderstandings, and should a dispute arise, the promissory note can be used as evidence in a court case.
Template for promissory note
At Qatchr, we do not offer a template ourselves, but Collectia has prepared a free version that can be used as a starting point. However, if the loan is complex, it is always recommended to seek legal advice.
