A promissory note is a type of negotiable instrument issued by a borrower (the person who owes money) to a lender (the person who lends money). This is a written promise to pay a sum of money at some future date.  A promissory note is often used to borrow money, although it may also be used to pay off debts. In some cases, the borrower promises to repay the loan plus interest over time. If the borrower fails to repay the loan, the lender may sue the borrower for the amount owed.

A promissory note is similar to a contract in that both parties agree to certain terms and conditions. However, unlike contracts, promissory notes do not require any consideration (i.e., no exchange of goods or services) between the parties. Therefore, they are considered to be unsecured debts. Know about some important terms related to a Promissory Note, as can be often seen in a promissory note template.

1. Payment

Payment is the act of paying back what was borrowed. When a creditor gives a debtor a promissory note, the debtor agrees to pay back the debt at a later date. The creditor then receives the money owed to him or her. The debtor is responsible for repaying the debt, including any interest accrued.

If the debtor does not make payments, the creditor may file suit against the debtor to collect the outstanding balance due.

2. Consideration

Consideration is the act of providing something of value to someone else in order to secure a debt. In the case of a promissory note, the debtor provides the creditor with the promise to repay the loan. If the debtor fails to fulfill his/her obligation, then the creditor may sue him/her for breach of contract.

You can find a free promissory note in Iowa template online easily.

3. Default

Default occurs when a debtor fails to make payments on a promissory note. If the debtor does not repay the debt, then the creditor may sue the debtor to enforce repayment. If the debtor defaults on a loan, he or she might lose his or her home or property. If a business fails to meet its obligations, it might go bankrupt.

4. Repayment Period

Repayment period is how long the debtor has to pay off the loan. For most loans, the repayment period is fixed. That is, the debtor cannot extend the repayment period beyond what is stated in the promissory notes. But if the debtor wants to extend the repayment period, the lender must agree to the extension.

If the debtor fails to make payments, then the creditor may file suit to collect any unpaid amounts owed. A promissory note is often issued in exchange for a loan. In some cases, the lender may issue a promissory note instead of taking possession of collateral.