What is a Promissory Note

A promissory note is a written acknowledgment of a debt owed and a promise to pay it to the designated payee. This contract instrument is often used in commercial, real estate and student loan lending. These notes can also serve as a form of alternative currency that can be sold or traded for other assets. There are several different types of promissory notes that are frequently used in lending transactions.

Demand Promissory Notes

A demand promissory note is one that will not have a specific date of maturity. Instead, the lender can call in the note with little notice. This type of promissory note is not commonly used as it puts the borrower at a distinct disadvantage.

Negotiable Promissory Notes

This type of promissory note generally has a negotiated payment terms, including a set maturity date and monthly payment amounts. This note is frequently used for mortgages and other real estate transactions. This type of note is also commonly used for federal student loan applications.