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Promissory Note Defined

Promissory Note Overview

Promissory notes are written promises by a given party to pay a sum of money, borrowed, to a lending party that has made the amount available to them. These notes are legal documents stating the provisions of the promise to repay the loan, and all the details entailed by the note. The note must outline all parties involved in the transaction and the information that pertains to the amount of money owed.

This information can include an interest rate on the amount, the amount of time for the note to be paid off by, as well as any penalties involved with payment violations. Promissory notes must be stored carefully, in that they are an official document even though not notarized. The clarity and quality of the note are essential to the existence of it, should it ever be necessary in a court. This can deal with a collection issue where the lender is seeking compensation for payments not made, or money owed on the note.

Preparation The way a note must be prepared deals with the steps taken to build a note by the parties involved, and the type of information that must be evident in the note. The note is prepared by the person that borrows the money known as a maker. The maker will include the amount owed, along with any security placed on the debt, and any interest rate stated by the lender.

The type of rate must also be mentioned and how it will affect the loan, and over what time if it is adjusted. In preparing the note it is important that the maker state all the guidelines set by the lender in regards to payments and penalties. The maker must clearly state his or her information as the borrower, likewise for the payee as well as where payments must be made. A promissory note must be dated and signed to be put into effect immediately, and does not require notarization.

Basic Provisions

The basic structure of a promissory note contains the parties involved, and all the set measures that are found to be controlling of the note. This would contain the thorough information of both the borrower and lender involved in the loan, as well as the amount of the loan. The amount of the loan must be accompanied by any interest rate, whether adjustable or fixed, on the debt, along with the payment options. The lender can set a certain time period for the payment to be made, along with penalties for early or late payments.

The note may prevent a borrower from paying off a debt too early, or be subject to a large penalty for doing so. In addition, the lender must be made aware of any security placed on the debt by the borrower in the form of property, deeds, or other similar means. The name of the maker and anyone signing the note, for example any partners, or other members of a corporation (in the case of a corporate maker), must appear legibly typed below the signatures. Once the document has been properly filled out and signed, it is put into effect without the need of a notary or witness.

NEXT: What is a Security Deed

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