In simple terms, a promissory note is a record of the transaction when borrowing a loan. It is a promise of repayment of the principal loan amount in addition to the interest, on or before a specified due date. A failure to repay the loan amount may lead to legal proceedings, and the borrower may have to bear the costs of attorneys as well as court visits. The promissory note outlines and highlights all the repayment terms and conditions. A promissory note is of particular importance when you are borrowing money from a private party or business. It is also useful as a formal agreement when you are lending money to an individual or business. It is important to note that having a promissory letter does not guarantee the repayment of loans. However, it clears the ambiguities related to the terms and conditions of loan repayment. A promissory note is also popularly called as note or note due form.
There are four primary repayment options for your promissory note. These are listed below.
Installment payment: The principal and interest amounts are repaid at regular intervals on specific due dates.
Installments with balloon payments: Interest is repaid on regular intervals. The principal loan amount, on the other hand, is repaid only on the maturity date.
Due on a specific date (lump sum): The principal loan amount, as well as the interest, is paid in one shot.
Due on demand (payable on demand): The principal amount, as well as the interest, is rapid whenever the lender demands for their money.
A promissory note typically includes the name of both the parties (lender and borrower, principal loan amount, interest rate, date of the loan, due date for repayment, the frequency of loan payments, repayment clauses as well as the terms and conditions. You can either download a ready-made promissory note template online or create your note. Promissory notes are incredibly simple to fill in, and you needn’t have the extensive legal knowledge to create one for your loan agreement.