Thursday, September 22, 2011
Be Protected With a Simple Promissory Note
While most of us may not realize it the simple promissory note that is in use today is not that much different from the ones that were used as far back as the 10th century BC. This note is a very simple yet legally binding contract between the lender and the person who is borrowing the money. It is designed to help both parties avoid making what could be costly mistakes that could easily result in a court battle and ill feelings between both parties. The law does not require this to be an overly complicated form and in fact the simpler the note is the better.
In the early days a promissory note only contained three things, the name of the lender, the name of the borrower and how much money had been loaned. Those in use today require little more and may only add such information as the contact information for both parties, the interest rate being applied to the loan and the final due date for repayment of the loan. This information is used to ensure that there can be no misunderstandings by either party involved in the loan.
There are typically two forms of this type of loan agreement; they are the secured note and the unsecured note. With a secured note you will be required to provide some form of collateral in the form of real property before the lender will complete the loan. These notes are generally used when a person buys a home or a car that has to be financed and the property they are buying is what gets used as their collateral. This way if they default on the loan the lender has something that can be sold in an attempt to recoup some of their losses.
With an unsecured note the loan is usually much smaller and often between two friends or family members. The problem with using this type of simple promissory note is that if the borrower defaults on the loan, the lender may have no other recourse than a court of law to attempt to recover his money. Since the borrower has already defaulted on the loan there is a relatively large possibility that the lender who takes civil action may not just end up out the value of the loan, but his expenses for attempting to collect the debt. A promissory note is only a legally binding contract if both parties have signed the document and should always be used when lending or borrowing money.
Article Source: http://EzineArticles.com/4664605
Posted by Anonymous at 10:14 PM