A secured promissory note is a written promise to repay a loan that is backed by collateral, such as a car, jewelry, or a house. It records the loan amount, the repayment plan, and the asset that backs the loan. Lenders often prefer it because the collateral adds protection if payments stop. It is one of two types of promissory note templates, the other being an unsecured note. You can fill in the free secured promissory note template on this page or download it as a PDF.
Last Updated: October 2026. This guide is reviewed and updated regularly to reflect current law. If you notice an error or outdated information, please contact us.
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When the borrower provides a “collateral security” in the loan agreement, which the lender can utilize if the borrower defaults, the note is called a secured promissory note. The word “secured” signifies that the money given is backed up with an asset or property of value as an extra assurance towards repayment. It gives the lender the right to forfeit the collateral if the loan is not paid back as per the repayment schedule.
However, it is critical to note that a secured promissory note is a legally binding document that can have a profound impact on the asset or property of the borrower. It must be carefully drafted and signed. A secured note is only binding on the borrower, which means that only the borrower is bound by its consequences of nonpayment in terms of forfeiture of the collateral.
If the borrower files for bankruptcy, then the lender is counted as a secured creditor and will receive priority of payment against unsecured creditors. When the borrower fails to pay back the loan as per the loan agreement, the lender does not get any automatic rights to the collateral asset or property. He or she needs to file a lawsuit to obtain legal rights to the collateral.
When personal property such as a car or jewelry is used to secure the loan, then a security agreement is entered into. In a secured promissory note, such an agreement is a part of its terms. If there is a default by the borrower, the lender can file a court case based on the agreement.
When real property such as a house is used to secure the loan, then a “mortgage” is created on the house between the lender and the borrower. Some states also refer to it as a “deed of trust.” If there is a default by the borrower, the lender can file a foreclosure of the mortgage in court.
Collateral can be personal property or real property. Common choices include:
Since promissory notes are typically used for personal loans where there is an informal relationship between the parties, there should be a good reason to ask for collateral from the borrower. The most common situations when a secured promissory note is used are:
When a buyer does not have full funds to purchase an item, the seller may allow the payment of the purchase price as a loan amount to be paid on a later date. However, the seller will require the buyer to provide a security in exchange.
For example, Olivia wants to buy jewelry worth $10,000 for her wedding day from John’s shop, but she does not have the full amount to be paid at that moment. John loans her the purchase amount through a secured promissory note, where Olivia provides the collateral security of her car and agrees to pay back John after four months along with an interest.
Even if it seems that the borrower will have enough funds to pay back the loan money as per the contract, they might not have good credibility in the market due to various reasons such as previous defaults. In such a case, to secure the payment amount, it is wise to ask for collateral to guarantee the payment.
Sometimes, a borrower might want to take a loan for personal, investment, or business purposes, but might not have enough income or salary to assure payment. However, he or she might have valuable assets inherited from parents that can be used as collateral. If the borrower defaults, the lender can regain the payments from such valuable assets.
For example, A and B are friends. A wants to borrow $100,000 from B to start a new business. This is a risky loan as A’s business may or may not make money to repay to B the borrowed money. However, A inherited her parents’ home in Dallas which has a good market value. B agrees to provide the loan to A on the condition that they secure the loan in the agreement with their inherited home.
When the principal amount is a hefty sum of money, it is preferable to use to secured promissory note to cover the risk of huge monetary losses. In case the borrower fails to make payments in accordance with the agreed terms, the lender has a back up against the nonpayment.
From a lender’s perspective, it is preferable to always use a secured promissory note.
It only makes sense to have a secured promissory note, if the lender can recoup the losses from default through the security provided. Therefore, the value of the collateral asset or property should be equivalent to or more than the principal loan value. The current market value of the collateral should be considered. For example, if a car is used to secure the loan, then the current market value of that used car, if sold, should be considered.
A secured promissory note puts the loan terms in writing and names the asset that backs the loan. Clear terms help the borrower and the lender remember what each side agreed to. Check that each detail below appears in the note.
A secured promissory note should include the following details:
A secured promissory note should include all other important terms included in a promissory note. To see other important terms used in a promissory note, see FormsPal’s Free Promissory Note Template.
A secured promissory note can have one of the following repayment structures:
You can prepare an amortization schedule by using a free amortization calculator.
These steps follow the FormsPal secured promissory note template that you can download from this page. Fill in the blanks in the order shown, and keep your own copy of the finished note. To type directly into the downloaded file, open it in the FormsPal PDF editor.
The screenshots under each step show the FormsPal Secured Promissory Note template filled with sample entries in blue, so you can see where each answer goes. The names, addresses, dates and amounts are examples only.
At the top of page 1, enter the date and the principal amount in dollars. In the opening paragraph, enter the borrower's name and address, then the lender's name and address. Include the city, state, and zip code. Then fill in the interest rate percentage.
Check the first box and enter a day number if payments are due each calendar month. For example, enter 25 for the 25th day of each month. Check the second box and enter a day number if payments are due each calendar quarter. Fill in only the box you check.
Check the first box and enter the dollar amount of each payment. Or check the second box and enter the number of years of the amortization schedule. That option points to an Exhibit A, which you prepare yourself because the download has no such page. Then enter the maturity date and start describing the collateral on the line after "secured by the following asset or assets."
At the top of page 2, finish the description of the collateral on the two lines that come before the words (the "Collateral"). Identify the assets so anyone could recognize them, for example by their location or identification number. For a house, you could write "two-story house at 123 Main Street, Austin, TX 12345."
Enter the state name whose law will govern the agreement in case of disputes. It goes on the line after "the laws of the State of" on page 2.
Under BORROWER on page 3, sign on the By line. Then print the borrower's name and title on the lines below it.
Under LENDER on page 3, sign on the By line. Then print the lender's name and title on the lines below it.
When every blank is filled in, the note is ready for signatures. Take your time with these last steps, because the borrower and the lender should each leave with a copy that matches. Follow the steps below to finish the document.
You can also use FormsPal's question-based document builder to customize the note for your needs.
A secured promissory note is backed by collateral, such as a car, jewelry, or a house. An unsecured promissory note relies only on the borrower's promise to repay. Many people choose a secured note when the loan amount is large or when both sides want extra protection for the loan.
People often use vehicles, jewelry, equipment, savings accounts, or real estate. Describe the item in enough detail that anyone could recognize it, such as a model and serial number for a car or a street address for a house. Choose an asset that is worth about as much as the loan.
Pick the schedule that matches how the borrower receives income.
Talk it over with the other person before you check a box on the form.
Make a copy of the signed note for the borrower and a copy for the lender. Keep the copies with any papers about the collateral, such as a title or a receipt. Write the payment dates somewhere you will see them.
Yes. You can answer a few questions in the FormsPal document builder, or download the PDF and type into the blanks on your device. Print the finished note for signatures.
General information, not legal or tax advice.
