A Promissory Note is a debt document that incorporates legal binding to pay another person, or party, whether asked on demand or to pay on some future date under the agreed terms and conditions. It is a payable note that includes and documents the promise of paying the money back on the decided date in full, or in installments. Moreover, this legally designed instrument highlights the following crucial elements to protect the rights of both the borrower and the lender to avoid future ambiguities:
- Loan amount.
- Calculated interest rate.
- Maturity date on which the amount of the loan will be repaid.
- The procedure of prepayment.
- State Law regarding the promissory note.
- Amendments
- Signature of Both Parties
How many parties does a Promissory Note include?
Drafting of a promissory note often includes two parties, such as a drawer and a drawer. However, at times, this legal document also involves the third party, which is called the payee. Drawee is the party who lends the money, and the drawer is the party who borrows the money on the promise to repay at the time of maturity. In addition, the payee is that party sometimes the borrower is directed to collect the money.
Promissory Note Simple Example:
“If Simon is running a business and needs funds to make payments to creditors and asks Mark to lend some funds by signing a promissory note, then here Simon is the drawer (Borrower), and Mark is the drawee (Lender). However, if Mark somehow decides to transfer this legal and financial instrument to Maria, then she is the payee.”
Many individuals get student loans after signing a promissory note to back their education from private institutions that outline the student and lender’s rights with specified repayment terms. On the other hand, credit promissory notes are in great use in the corporate sector, as many businesses make the best use of this legally binding instrument when somehow lacking in cash resources to meet their operations and make regular payments to creditors. In this way, most businesses issue credit promissory notes. Similarly, many people also sign mortgage promissory notes to get their desired residence. They mutually set out the terms for the repayment of the mortgage loan and signed it. Therefore, promissory notes are used by people to acquire personal loans and businesses for short-term financing.
How many types of Promissory Notes are in use?
There are mostly three major types of promissory notes that are in great use. Unsecured, Secured, and Demand. Here you will get to know how each sort of promissory works.
- Unsecured Promissory Note:
When a promissory note is not supported by any means of collateral, it is called an unsecured promissory note. It means the lender has nothing has no other option but to initiate legal options in case the borrower fails to make repayment of the loan.
- Secured Promissory Note:
This is another type of financial instrument that is supported by the term collateral. In this process, a promissory note is secured by some kind of asset, such as a vehicle, property, etc. When the borrower is unable to pay the debt then the drawee (Lender) has the right to take possession of the collateral as compensation.
- Demand
In this kind of promissory note, the repayment schedule is not specified. Therefore, a demand promissory note only outlines the amount of the debt that must be paid.
Promissory Note Templates
Nowadays it only takes a few minutes to prepare a promissory note like professionals. As some people find it hard to draft this legally binding document, most online websites provide a variety of free promissory note templates. That includes a well-organized editable layout, and with these fillable and printable promissory note templates the whole process of creating a financial instrument becomes easier.
The Download link for this Promissory Notes Template 06 is below,
Please click on the download button below to download this Promissory Notes Template 05 in MS Word format,
Here is the download link for this Promissory Notes Template 04,
You can download this Promissory Notes Template 02 from the link below,
Here is the download link for this Promissory Notes Template 01,
Bottom Line
Promissory notes are a great financial tool by which businesses acquire a loan when running low on cash to meet a certain due obligation and make a promise to pay the lender in a specific time frame. Due to legal binding, if the borrower doesn’t fulfill the promise to repay the loan, then the lender has the right to take legal action. Therefore, to have a keen look at the promissory note, you can simply browse online with the term “promissory note sample” You will find numerous promissory note templates, samples, and examples to help you a great deal.
