What Is Promissory Note

What is a promissory note used for?

Promissory notes may also be referred to as an IOU, a loan agreement, or just a note. It’s a legal lending document that says the borrower promises to repay to the lender a certain amount of money in a certain time frame. This kind of document is legally enforceable and creates a legal obligation to repay the loan.

What is promissory note example?

A promissory note is a legal, financial tool declared by a party, promising another party to pay the debt on a particular day. It is a written agreement signed by drawer with a promise to pay the money on a specific date or whenever demanded.

What is a promissory note in law?

A promissory note is a signed legal document that contains a written promise to pay a defined sum of money to a defined person on a stipulated date or on demand. By way of a promissory note the mode of repayment of loan gets pre defined.

What is promissory note India?

A “promissory note” is an instrument in writing (not being a bank-note or a currency-note) containing an unconditional undertaking signed by the maker, to pay a certain sum of money only to, or to the order of, a certain person, or to the bearer of the instrument.

Who uses promissory note?

Promissory notes can be useful for parties who have a close and trusting relationship and where the sum of money is relatively low. In these situations, the parties likely do not want to negotiate a long, complex and costly loan agreement.

Who prepares a promissory note?

The Maker or Drawer – the person who prepares the note and promises to pay the amount mentioned therein. . The Payee – the person to whom the amount is payable.

Is promissory note valid in India?

After issuance, a Promissory Note must be stamped according to the regulations of the Indian Stamp Act. All Promissory Notes are valid only for a period of 3 years starting from the date of execution, after which they will be invalid.

What are the advantages of promissory note?

A key benefit that a promissory note provides you, whether you are the borrower or the one providing the fund, is flexibility. A promissory note allows you to specify how payments will be made — in installments, at a future point in time or on demand.

Do promissory notes hold up in court?

Generally, as long as the promissory note contains legally acceptable interest rates, the signatures of the two contracted parties, and are within the applicable Statute of Limitations, they can be upheld in a court of law.

Is Witness required for promissory note?

It is a promissory note. As per law, no attesting witness is necessary for a promissory note.

How long is a promissory note valid?

Depending on which state you live in, the statute of limitations with regard to promissory notes can vary from three to 15 years. Once the statute of limitations has ended, a creditor can no longer file a lawsuit related to the unpaid promissory note.

Who can witness a promissory note?

Generally speaking, there is no requirement for a witness or notary public to witness the signing of the Promissory Note.

What is required in a promissory note?

Important details any promissory note should state include the following: Payor or borrower : Include the name of the party who promised to repay the stated debt. Payee or lender : Include the name of the lender, the person or entity, lending the money. Date : List the exact date the promise to repay is effective.

What are three types of promissory notes?

Types of Promissory Notes Simple Promissory Note. Student Loan Promissory Note. Real Estate Promissory Note. Personal Loan Promissory Notes. Car Promissory Note. Commercial Promissory note. Investment Promissory Note.

What does repayment period mean?

Repayment Period means the period commencing on date on which the Grace Period expires and ending on the Final Repayment Date.

How many types of promissory note are there?

There are four significant types of promissory notes in India. A personal note is the kind of promissory note that an individual should seek when lending money to family members or close relatives. A commercial note is the type of promissory note that is signed between a borrower and a financial institution.

What is the difference between bill of exchange and promissory note?

There are three types of Negotiable Instruments, namely Bill of Exchange, Cheques and Promissory Note.Meaning of Promissory Note. Bill of Exchange Promissory Note Is it Payable to drawer/maker Yes, the same person can be drawer and payee. The same person cannot be drawer and payee.

Do promissory notes need to be registered?

Typically, promissory notes are securities. They must be registered with the SEC, a state securities regulator, or be exempt from registration. Most legitimate promissory notes can easily be verified by checking the SEC’s EDGAR database or calling your state securities regulator .

Is a promissory note valid after death?

Jaipur-based advocate, Ashish Davessar, says, “If the lenders proceed to recover the debts from you on the basis of the promissory notes executed in their favour, the court can hold you liable for the repayment of debt to the extent of the property of your deceased father which you have inherited.

Is stamp duty payable on promissory note?

At present, the stamp duty is levied at an average rate of 0.375% ad valorem (as a percentage of the value of issue) on debentures while promissory notes attract a duty of 0.05%. The move is expected to bring down the cost of raising debt funds in states that levy stamp duty at a higher rate.

What are some disadvantages of promissory note?

Some possible disadvantages are: You will likely pay a higher interest rate than for a secured loan. If you are using a promissory note because you don’t have a good credit rating, you will likely pay a higher interest rate than if you obtained a commercial business loan from a bank or other institution.

What does an interest rate of 10% mean?

In other words, it describes how much interest you’ll pay if you borrow for one full year. Let’s say you borrow $100 at 10% APR. Over the course of one year, you’ll pay $10 in interest (because $10 is 10% of $100).

What are the advantages and disadvantages of promissory notes?

A promissory note is a relatively informal, but still legally binding, loan commitment. Simplicity and flexibility are two primary advantages of using a promissory note in lieu of a loan. However, promissory notes aren’t as beneficial in complex situations where a more formal loan agreement is necessary.