Promissory notes are written promises to pay a specific amount within a specific timeframe. Both parties must sign this document to guarantee the borrower will repay the lender on that date.
Promissory notes are different from contracts. Contracts contain all the details of legal agreements. Promissory notes cover only the following:
- Payment due date;
- Payment method; and
- Amounts owed.
Any financial institution can use promissory notes. In the past, you likely signed one when you took out a loan.
Other terms for a promissory note are:
- Demand note;
- Commercial paper;
- Loan agreement;
- Notes payable; or
Whether between individuals or between entities, a promissory note records a loan. Promissory notes ensure clarity about due dates for payments and payment amounts by putting all relevant details in writing.