A promissory note is a legally binding document where one party promises to pay a specified sum to another party under agreed-upon terms. Repayment plans outline how and when the borrower will repay the loan. Below are three diverse examples that illustrate different repayment scenarios.
In this scenario, John borrows $5,000 from his friend Sarah to cover unexpected medical expenses. They agree on a repayment plan to ensure John can manage his finances while repaying the loan. The plan includes monthly payments for a fixed period.
John and Sarah agree on the following terms:
Repayment Schedule:
Total Repayment Amount: $5,190.72 (inclusive of interest)
Notes: In this example, John can use a loan calculator to determine the monthly payment amount based on the interest rate and loan term.
A small business owner, Maria, seeks a loan of $20,000 to expand her coffee shop. She approaches a local bank and agrees on a repayment plan that includes quarterly payments to align with her business’s revenue cycle.
Maria’s loan terms are as follows:
Repayment Schedule:
Total Repayment Amount: $20,745.88 (inclusive of interest)
Notes: Maria should keep track of her business cash flow to ensure she can make the quarterly payments without affecting her operations.
Emily is a recent college graduate who took out a student loan of $15,000 to fund her education. She opts for a repayment plan that allows for lower payments initially, with a gradual increase as she secures employment.
The terms of Emily’s student loan are as follows:
Repayment Schedule:
Total Repayment Amount: Approximately $18,500 (inclusive of interest)
Notes: Emily should consider refinancing options after a few years if her financial situation improves to secure a better interest rate.