Lender Information
Borrower Information
Loan Details
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Repayment Terms
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Late Payment & Default
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Governing Law
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PROMISSORY NOTE
Principal Amount: $5,000.00
Date: -
FOR VALUE RECEIVED, the undersigned, [Borrower Name], of [Borrower Address] (the "Borrower"), hereby unconditionally promises to pay to the order of [Lender Name], of [Lender Address] (the "Lender"), the principal sum of Five Thousand Dollars ($5,000.00) in lawful money of Canada.
INTEREST: The unpaid principal balance shall bear interest at the rate of 5.00% per annum, calculated and compounded monthly, from the date hereof until paid in full. Interest shall be calculated on the basis of a 365-day year and the actual number of days elapsed.
REPAYMENT: The entire principal amount together with all accrued interest shall be due and payable in one lump sum on or before [Due Date].
LATE PAYMENT: If any payment is not received within 10 days of its due date, the Borrower shall pay a late charge of $25.00 for each late payment. This late charge is in addition to, and not in lieu of, any other remedies available to the Lender.
DEFAULT: In the event the Borrower defaults on this Note by failing to make any payment when due and such default continues for a period beyond the grace period specified herein, the entire unpaid principal balance together with all accrued interest shall, at the option of the Lender, become immediately due and payable (acceleration clause). The Borrower shall also be responsible for all costs of collection, including reasonable legal fees incurred by the Lender.
PREPAYMENT: The Borrower may prepay this Note in whole or in part at any time without penalty or premium. Any prepayment shall be applied first to accrued interest and then to the principal balance.
GOVERNING LAW: This Promissory Note shall be governed by and construed in accordance with the laws of the Province of Ontario and the federal laws of Canada applicable therein.
WAIVER OF PRESENTMENT: The Borrower hereby waives presentment for payment, notice of dishonour, protest, and notice of protest of this Note.
SEVERABILITY: If any provision of this Note is found to be invalid or unenforceable, the remaining provisions shall continue in full force and effect.
Borrower Signature
Print Name: [Borrower Name]
Date: _______________________
Witness Signature
Print Name: _______________________
Date: _______________________
Understanding Promissory Notes in Canada
What is a Promissory Note?
A promissory note is a written, unconditional promise by one party (the borrower or "maker") to pay a specific sum of money to another party (the lender or "payee") at a determined future date or on demand. In Canada, promissory notes are governed by the Bills of Exchange Act (R.S.C., 1985, c. B-4) and are legally binding financial instruments when properly executed.
Demand Notes vs. Term Notes
- Demand Note: The lender can request full repayment at any time. There is no fixed maturity date. Common for informal family or friend loans where the lender wants flexibility.
- Term Note: Has a specific due date or repayment schedule. The borrower is not required to pay before the stated maturity date unless they default. This generator creates term notes.
Secured vs. Unsecured Promissory Notes
- Unsecured Note: Backed solely by the borrower's promise to pay. If the borrower defaults, the lender must pursue legal action to recover the funds. This generator creates unsecured notes.
- Secured Note: Backed by collateral (e.g., property, vehicle, or other assets). If the borrower defaults, the lender may seize the collateral. Secured notes typically require additional documentation and registration.
Criminal Code Interest Rate Limit
Under Section 347 of the Canadian Criminal Code, it is a criminal offence to charge an effective annual interest rate exceeding 60% per year (including all fees and charges). This is known as the "criminal rate of interest." Any agreement that exceeds this rate is void and unenforceable, and the lender may face criminal charges. Always ensure your total effective rate stays well below this threshold.
CRA Tax Implications of Interest Income
- For the Lender: Interest income received on a promissory note must be reported as income on your tax return. The Canada Revenue Agency (CRA) requires you to report interest income on an accrual basis (annually, even if not yet received) for most situations.
- For the Borrower: Interest paid on personal loans is generally not tax-deductible. However, if the borrowed funds are used for investment purposes or to earn business income, the interest may be deductible under certain conditions. Consult a tax professional for specific guidance.
When to Use a Promissory Note
- Personal loans between family members or friends
- Small business loans
- Down payment assistance
- Informal lending arrangements where a full loan agreement may be excessive
- Recording existing verbal loan agreements in writing
- Student loans from private individuals
Enforcement
If a borrower fails to honor a promissory note, the lender can pursue legal action in civil court. In most Canadian provinces, claims under a certain threshold (typically $25,000-$35,000 depending on the province) can be filed in Small Claims Court, which is faster and less expensive than Superior Court. A properly drafted and witnessed promissory note is strong evidence in any legal proceeding.
Important Considerations
- Always have a witness sign the note for added enforceability
- Both parties should keep a signed copy
- This tool generates a general-purpose promissory note. For large amounts or complex situations, consult a licensed lawyer
- A promissory note is different from a loan agreement -- loan agreements typically include more detailed terms, representations, and warranties
- Consider having the borrower's signature notarized for additional security