Promissory Note Definition
Written by True Tamplin, BSc, CEPF®
Updated on June 21, 2021
What Is a Promissory Note
A promissory note contains in writing all of the provisions pertaining to the indebtedness, including the principal amount, the interest rate, the maturity date, and the issuer’s signature.
In terms of its legal strength, a promissory note is generally stronger than an IOU but weaker than a formal loan agreement.
Nonetheless, the stipulations in a promissory note are considered to be an unconditional promise.
What Is a Promissory Note In Finance?
Although promissory notes may be issued by financial institutions like banks, in general they are used so that an individual or company can get formal financing from a source other than a bank.
For example, many young adults sign promissory notes with private lenders when taking out a student loan.
Promissory Note Example
In cases where a promissory note is unconditional and salable, it may be sold between entities as a financial instrument.
In this event it is usually referred to as a negotiable instrument.