If you plan to create a secured promissory for either personal or business purposes, it's important to understand secured promissory notes and amortized payments.
updated November 21, 2023 · 3min read
If you are planning to create a secured promissory note that provides for periodic payments, you will need to determine the correct periodic payment amount. You should also create a payment schedule to keep track of the interest paid and the reduction of principal.
A promissory note is a legal document that obligates a borrower to repay a loan to a lender, and sets forth how the loan is to be repaid. A note is a secured promissory note if the repayment is secured by property of the borrower. If the lender fails to repay the loan, the property, called collateral, can be taken by the lender.
A secured promissory note that limits the lender to taking the collateral if the borrower fails to pay is called a nonrecourse, or no recourse, secured promissory note. A note that does not include such a limitation is a secured promissory note and a personal guarantee of the borrower, which allows the lender to sue the borrower if the property is not of sufficient value to cover the loan balance.
There are three primary ways in which a promissory note can be paid:
With a fully amortized loan, the periodic payment will be sufficient to pay off the loan with the last payment. For a balloon payment loan, the periodic payment will be sufficient to pay the loan down to the designated lump sum due at the end of the loan term.
The amount of the amortized loan payment will be determined by four factors:
Secured promissory note installment payments will be partly interest and partly principal. With each payment, the amount that constitutes interest will decrease, and the amount that constitutes a reduction in principal will increase. Therefore, the first payment will be mostly interest, and the last payment will be mostly principal.
A schedule for secured promissory note amortized payments can be created from various online calculators. You fill in the principal amount, interest rate, payment frequency, and total number of payments. The calculator will then produce a payment schedule. For each payment, such a schedule will indicate the payment amount, the amount allocated to interest, the amount allocated to the reduction of principal, and the principal balance after the payment.
A secured promissory note form that provides for amortized payments also can be completed by utilizing the services of an online service provider.
by Edward A. Haman, Esq.
Edward A. Haman is a freelance writer, who is the author of numerous self-help legal books. He has practiced law in H...
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