Promissory Note

A Promissory Note is an enforceable promise for a borrower to pay back a loan or debt to a lender.

A Promissory Note is the legal name for a legal document people sometimes think of as an “IOU”. The promissory note is sometimes used in conjunction with a Loan Agreement where additional provisions are required for more detailed loan arrangements. In general a promissory note will address the following issues regarding a loan:

• the term of the loan (it can be for a specified fixed length of time or payable “on demand” whenever the lender demands repayment of the amount loaned to the borrower)
• the amount of the loan
• the interest payable
• any terms regarding the right to pre-pay the loan before the due date
• what happens if the borrower misses a payment or fails to pay when payment is demanded