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A promissory note is a legal, financial tool issued by one party that promises another party to pay a debt on a specific date. It is a formal agreement signed by the drawer promising to pay the money on a specified date or whenever requested.

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What is a Promissory Note?

This note is a short-term credit instrument unrelated to any currency or banknote.

Parties of Promissory Note

There are three major stakeholders in all promissory notes. The drawee, drawer, and payee are examples of these.


: A drawer is someone who commits to paying the drawee a particular amount when the promissory note matures. He or she is also known as the creator.


She/he is the person for whom the promise is written. Unless and until the promissory note is formally transferred in favor of the payee, the drawee is also the payee in most situations.


A payee is a person or entity to whom the payment is paid. Most of the time, the payee and drawee are the same persons who receive the cash.

The promissory note is kept by the party that loaned the money, and when the due date is reached, the payee or drawee cancels the note and returns it to the drawer/payee.

What are the characteristics of a Promissory Note?

  • A promissory note must be written; an oral commitment to pay money is not acceptable.
  • It is a commitment to pay the money at a specific time or when requested. The specified amount cannot be added or removed.
  • The document is signed, drawn, and stamped by the drawer.
  • In all instances, the promise to pay a specific sum must be absolute.
  • A conditional assurance is not recognized in such notes.
  • All payments must be paid in the legal currency of the country.

Types of Promissory Note

In the case of a secured note, the borrower will be asked to produce collateral, such as property, products, or services, if they fail to repay the borrowed sum. The value of the collateral given must be more than or equal to the amount borrowed.

In the event of an unsecured Promissory Note, no collateral is required. If one has a good credit score, it is simple to obtain an unsecured loan.

Key Elements of Promissory Note

A Promissory Note will only be enforced if it has all of the parts required to make it a legal document. It must include the following information to make a Promissory Note enforceable.

  • The Promissory Note must include the legal names of all parties involved and their addresses.
  • The amount of money borrowed or lent.
  • The letter must mention the date the loan repayment must be made.
  • If interest is being charged on the lent or borrowed amount, the note must state the interest rate.
  • If interest is being charged, the note must explicitly state the final amount to be returned after interest is applied.
  • The note must include a list of the items or services that will be used as collateral for the loan and their value.
  • The note must clearly state the terms under which the loan must be repaid.
  • The note must clearly state the terms that apply if the borrower fails to make timely payments on the loan amount.
  • The borrower’s and a witness’ signatures are required on the note. Without the borrower’s and witness’ signatures, the note is void and has no legal standing in a court of law.