subject: Types of promissory notes [print this page] Types of promissory notes Types of promissory notes
When it comes to loan agreements, the promissory note always comes in handy as it is a document that ensures that the loan is repaid on time and according to the agreement that has been made between two or more parties. This implies that this particular note is very important to both parties when it comes to the repayment of that particular loan. This note usually contains various details that have been agreed upon by the lender and borrower and these details have to be adhered upon at all times. Such details include the principal amount, the repayment date, the interest charged and any other relevant information. There are various types of promissory notes that are used worldwide. They include:
1. Personal-They are usually the most common and popular types of notes. They are normally used to document personal loans between close friends and family members. There are many people who do not prefer to use legal action when they are lending money to their family or friends but it is usually a good idea to use such notes regardless of the person you are dealing with. When an individual uses such a note, he or she is trying to show good faith on the part of the borrower and also demonstrates a sense of security on the part of the lender. Such notes should state clearly the terms of repayment, the amount of money to be repaid, the amount of interest to be charged and what will happen if borrower does not repay loan.
2. Commercial- This note is essential especially when an individual is borrowing money from a commercial lender. These notes are similar to the personal notes and they also state the terms of payment, the interest charged and the payment amount. In cases where the borrower defaults on this note, the lender can demand full payment.
3. Investments- There are many organizations that use these notes for the purpose of raising capital to be used for business. In this case, such a note is given to the investors in exchange for a loan. When it comes to this kind of note, the investors concerned are usually guaranteed their return on investment on the stipulated time without any delays.
4. Real estate-There are certain negotiable notes that are normally employed in real estates and they are usually governed by the Uniform Commercial Code. These notes have to meet certain conditions which have been set by the National Conference of Commissioners on Uniform State laws.
