The History Of The Promissory Note

While the concept of the promissory note has more than likely been around since the dawn of hard currency, the promissory note itself dates back to the early 10th century.

The promissory note has changed very little over time. A promissory note is basically a simple type of agreement. Or at least, it should be in most cases. The idea still remains the same, which is: one party makes a written oath to repay a debt to another party for prior monetary value received. A modern day promissory note has several basic legal elements, which includes the parties; the person who owes the debt (called the payee) the lending party (called the maker) which is the sum to be repaid, along with the terms and conditions of repayment.

In addition, there's the interest rate (if it is applicable) and the maturity date. Today's more refined promissory note encompasses even more. Most will have a governing law clause or legal provision. Usually most will have an "acceleration clause" whereby the specified repayment terms speed up (in the event where the entire sum becomes due) in a special happening, in most cases when the maker forgoes a payment.

HOW CAN A PROMISSORY NOTE BE USED?

A promissory note form (or legal document) is a detailed and written personal promise to repay money to somebody else.

A promissory note can be used to create a legal and binding agreement when lending money or even financing the sale of personal items and real property. A promissory note's payment can be scheduled to fit your specific needs and requirements. It's a matter of simply setting out the terms and conditions of the loan in an "unsecured promissory note" or a secured promissory note. Important things to consider are: "how much is going to be loaned, the amount of interest and rate (if any at all), the rate of repayment you wish to schedule", and the security interest. You can even have the entire amount become due and payable on a certain date. The promissory note forms you will find on this site are set-out in plain English so that you can insert the specific terms and conditions for the promissory note by simply filling in the blank spaces.

Misconceptions About Promissory Notes

There are a few borrowers who believe that a promissory note which is signed and dated with a private person lender is somehow much less enforceable than say a promissory note signed with a bank. This is completely untrue! There is absolutely no difference whatsoever in the enforceability of a promissory note no matter whom the lender is, and this is an important thing to remember. Once the promissory note is duly signed and dated it is legally binding, and the failure of a borrower to perform under the terms and conditions of the promissory note is legal grounds for default and foreclosure of the loan.

The Functionality Of A Promissory Note

The functionality of a promissory note is to outline in detail the specific amount and terms of a loan and in addition, to provide signed evidence of the receipt of the loan proceeds, and the actual commitment by the borrower to repay the loan completely. In the case of a commercial bank loan, the promissory note will also include a detailed "repayment amortization schedule" and will outline the total amount of interest including the principal payments over the life of the loan.