A promissory note can be payable either on demand or by a future date. When you hold a demand promissory note, you can call in payment on the debt whenever you choose. To request repayment, you will want to send a demand for payment letter. It's important that your demand letter is clear and meets the requirements in your promissory note.
Demand promissory notes
A promissory note is a legal lending contract that is enforceable, although it is a less formal type of loan than one from a bank to a business, for example. A promissory note is often used when you lend money to family or friends. A promissory note (sometimes called a promissory letter), should include:
- The names and addresses of the lender and the borrower
- The amount of the loan
- Interest on the loan
- Loan payment requirements
- The date that final payment is due
- Information on prepayment
- A full description of what will happen upon default (failure of the borrower to make payments)
- Information about which state laws will apply to the agreement
A demand (or due on demand) promissory note is a note that you as the lender, or holder, can collect on at any time. In other words, the loan comes due whenever you decide to ask for the money, whether the borrower is making regular payments or not. The note must indicate that the loan can be called on demand and describe the steps required by the holder to call it in.
When you can collect on a demand promissory note
A demand promissory note can be called in for payment at any time. You don't have to wait for the borrower to be in default on the loan. Any time you would like repayment in full, you can ask for it. Both you and the borrower agreed to this term when you signed the note, so it should not be a surprise if you do decide to call the note in. It can be a good idea to let the borrower know that you are calling the note, particularly if this is a friend or family member. A friendly phone call or email can blunt the blow of receiving a formal legal demand letter.
Before you start this process, though, it is important that you review your promissory note. It will have information about the steps you need to take to demand payment and what will happen if the borrower does not pay when you demand it. Be sure to follow the procedures that you have laid out in the promissory note. Once you've ensured that you understand and have complied with those requirements, you can send a demand letter.
Demand for payment letter
To collect on a demand promissory note, you will need to send a demand for payment letter to the lender. This lets the lender know that you want the loan paid back now and that the repayment period is ending. This demand letter should include the following:
- The date of the letter
- The names of the borrower and lender
- The original amount of the loan
- The date of the promissory note and any reference number or account number it contains
- The payment schedule that was agreed upon
- The unpaid amount you are collecting, including interest
- A statement that you are making a demand for the full amount owed now
- A statement that, if the borrower does not pay, you will take legal action
- A statement that the borrower will be responsible for attorneys' fees, court costs, collection costs, and interest if they do not pay
- Where to contact you
- Your signature
You can write the letter yourself, or you can work with an attorney or use an online legal form. Once the letter is written, it is important to send the demand letter via certified or registered mail, so that you have legal proof it was received.
After you send the demand letter
If the borrower does not make the payment by the date you request in your letter, they are in default. This means they are in violation of the terms of the note. You can move forward and take legal action against the borrower. Be sure to document all of your expenses from this point forward because, under the terms of your note, the borrower is likely responsible for them.
The simplest and least expensive first step after sending the letter should be to send a follow-up letter, letting the borrower know they are in default and setting a date by which you must receive payment or you will take legal action. If the borrower does not repay you, your legal recourse could include repossessing any collateral the borrower put up against the note, sending the debt to a collection agency, selling the promissory note (so someone else can try to collect it), or filing a lawsuit against the borrower.
When you have a demand promissory note in place with a borrower and you decide to call the note in, a demand letter is the way to ask for the money. By following all the required steps, you can get a return of the outstanding amount on the loan.
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