Glossary → Debt & Finance
Debt & Finance

Promissory Note

A written, enforceable promise to repay money.

A promissory note is a written, signed promise to repay a specific sum on defined terms — the amount, interest rate, payment schedule, and what happens on default. Unlike a casual IOU, it’s an enforceable financial instrument, used for personal loans, business financing, and seller-financed sales.

In practice

“For value received, Borrower promises to pay $10,000 with interest at 6% per annum.”

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The terms that decide what you owe

Read the interest rate against your state’s usury limit, and check whether it compounds. Look at whether the note is “demand” (payable whenever the lender asks) or on a fixed schedule, what counts as default, and whether there’s an acceleration clause — which can make the entire balance due at once after a single missed payment. A personal guarantee or collateral pledge attached to the note extends liability beyond the borrower, so know exactly what secures it before signing.

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What it looks like in a real document

“Upon any default, the entire unpaid balance shall become immediately due and payable at the holder’s option.”

That’s an acceleration clause — one missed payment can trigger the whole balance. It’s standard, but it’s why the default and cure terms in a note deserve a careful read.