What Is a Promissory Note?
A Promissory Note is a written promise to repay a debt on a specified future date. It is a term used in accounting and is considered a “financial instrument”, meaning it is a monetary contract between two or more parties. You may have heard of it as an agreement to pay back the money. If you wish to create a legal record of debt that will ensure your protection, browse among a variety of payable notes our site offers down below.
A promissory note normally includes specific terms pertaining to the indebtedness, for example, the amount and the interest, if any, maturity date, date, and place of issuance and the signatures of the parties. This document is widespread among friends and relatives who try to avoid the services of a banking institution. However, a bank may issue such a note as well. It is common in financial services where they may be referred to as a note for IOU (“I Owe You”) or a loan agreement. It is a legally binding document, which creates a legal obligation to pay back a debt or loan and is legally enforceable.
How to Use a Promissory Note?
Apart from loans between family members and friends, a note to pay back funds is used in mortgages, student and car loans and in small businesses. Sometimes, a promissory note is used along with a security agreement, e.g. with a mortgage (a mortgage note). Its usage is similar to that of a loan, although it is not as lengthy and detailed as a loan agreement, does not usually require installment repayments, nor does it contain the terms for recourse in a case of a default. Anyone issuing a note of hand becomes a lender with all the consequences that this legal contract involves.