Online Loan Terms: 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.
We have over 50 other online loan terms defined in our dictionary.
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