Financial lending and borrowing between family and friends is done on the basis of trust. However, the terms of such financial transactions are often unclear, which may lead to confusions regarding the payback of the loaned amount. This can end up straining the relationship between the involved parties. A Promissory Note is a unique financial instrument which binds the borrowers by law to pay the lender the specified sum of money at a specified date or on demand. Promissory Notes are negotiable instruments issued under the Negotiable Instruments Act and can be of different types, such as with single or joint borrowers, to be paid on demand or on installments, payment to be made in a lump sum, with interest or without interest.
A Promissory Note may be secured or unsecured. In case of a secured note, the borrower will be required to provide a collateral such as property, goods, services, etc., in the event that they fail to repay the borrowed amount. The value of the collateral being provided must be more or equal to the amount that is being borrowed. N case of an unsecured Promissory Note, no collateral needs to be provided. An unsecured loan is easy to get if one has a health credit score.
A Promissory Note will only be enforceable if it includes all the elements which are necessary to make it a legal document. To make a Promissory Note enforceable, I must contain the following information.