| |
Promissory note
The term promissory note is, as the name suggests, a written contract detailing the terms and conditions of a promise by one party, which is the payer, to a sum of money to be paid to the other party, the payee. The obligation of repayment may come from a mortgage loan or from another form of debt. For instance, in the sale of a business, the sales price may be a combination of an immediate cash payment and one or more promissory notes for the remaining balance.
The terms of a note usually include the total principal amount, the interest rate, and the maturity date. Sometimes the promissory note will include provisions concerning the payee’s rights in the case of a buyer default, which may be the result of foreclosure of the market’s interest. There is a type of note called demand promissory note that does not carry a specific maturity date. Demand promissory notes are due on demand of the lender. What usually happens with this type of demand is that the lender will only give the borrower a few days notice before the payment is due.
In the case when loans are between individuals, writing and signing a promissory note is considered to be a good idea for tax and record keeping purposes. A promissory note is not the same as an IOU. An IOU is a simple acknowledgement of the debt owed between two parties, while a promissory note is more detailed, giving the terms of an affirmative undertaking to pay the amount specified in the note.
|
|
