A simple promise to pay letter is a legally binding contract between someone who borrows money, the promisor, and the person who lends the money, the payee. The letter should include how and when the repayments will be made as well as any penalties if the promisor defaults on payments. If it is properly written, the letter can be used as evidence in court if it becomes necessary for the payee to go to court to get the money back.
It’s a good idea to write a promise to pay letter whenever a person loans money even to a family member, friend or colleague. Loaning money is a business transaction and should be treated as such. The letter will eliminate any possibility of confusion later.
This letter will protect both the payee as well as the promisor. The payee wants legal proof that they loaned the money and that the promisor agreed to repay it. The promisor wants legal proof of how much they borrowed, so the payee cannot claim the amount was higher at a later date. It is recommended to sign the letter in front of a notary. This may require a small fee. If it is not possible, then witnesses should also sign the letter. A copy should be made so both the promisor and payee has one.
Agreement letters may also be used at the time of a divorce when the mother requires regular payments from the father for child support. Insurance companies may also request an agreement letter to ensure the client will make the proper deductible payments. Payment letters are also useful for people who want to repair their credit report. Most lenders will be happy to work with debtors if they give a clear offer of payment.
If the letter is between business partners or for official loans, the amount of interest that will be charged for the duration of the loan should be mentioned. For loans between friends, interest is often not charged, but should be mentioned if it is charged.
The letter should be very concise to avoid confusion. It should include:
• The legal name of both the promisor and the payee
• The total amount of the loan
• The terms of the repayment
• What the payments are for
• When the payments are due
• How the payments will be made
• When the last payment should be made
• Any penalties for defaulting
• Any grace period for late payments
The letter should have a signatory area at the bottom, and it is recommended that there be space for a witness signature for each side. The format should be accurate if it is to be seriously considered in the event the payee needs to go to court.
By Andre Bradley