What Are the Different Formats for Promissory Notes?

Helen Akers

The different formats for promissory notes vary according to the repayment schedule, which is usually determined by the lender. A promissory note can resemble an open line of credit, allow the lender to collect full repayment at any time, outline a series of small payments towards the loan's outstanding balance, or call for payment of the entire balance on a specified date. Most notes contain details that specify the interest rate, the lender, the borrower, and whether the loan is secured.

A promissory note is an agreement between two parties indicating a maker's intention to pay a specified amount of money to a payee, or lender.
A promissory note is an agreement between two parties indicating a maker's intention to pay a specified amount of money to a payee, or lender.

An open line of credit is one of the types of formats for promissory notes. With this type of bank note, the borrower's maximum amount of purchasing power is stated in one of its sections. Any withdrawals or purchases made on credit are documented on the note, along with any payments made towards the balance. It operates in a similar fashion to a consumer credit card, where the revolving balance cannot go over a predefined limit.

A demand promissory note stipulates that the borrowed amount of money can be collected at the discretion of the lender. As one of the common formats for promissory notes, borrowers may have a predefined limit. The main risk with this type of note is that the bank can ask for payment in any amount at any time. Lenders are usually free to collect payment or the collateral that secured the amount of the loan.

The various formats for promissory notes also include an installment repayment schedule. These notes are very similar to a mortgage or vehicle loan that includes a set number of repayments over a specific time period. Each payment is applied towards the outstanding loan balance and interest charges. At the start of the repayment schedule, more of the payment may go towards interest charges rather than the loan's principal.

With installment promissory notes, the borrower is usually taking out a specified amount of money. Until the loan is completely repaid, he may not withdraw any additional funds. Some installment bank notes may be secured by a piece of property or other valuable item that can be resold if the borrower defaults on his repayment schedule.

Another one of the formats for promissory notes specifies that the entire balance will be paid in full on a specific date. Instead of paying back the balance in smaller amounts, the full principal and any interest charges are due at once. Due to the fact that full payment is requested, these bank notes are typically used for short-term loans.

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