A promissory note is a written promise to repay a loan on specific terms. It's what turns a handshake agreement between friends, family, or business partners into something enforceable if repayment doesn't happen as agreed.
The core terms that have to be there
The principal amount, interest rate (if any), repayment schedule, and maturity date are the essential terms — a note missing any of these leaves real ambiguity about what was actually agreed to.
Secured vs. unsecured
An unsecured note relies solely on the borrower's promise to pay. A secured note ties repayment to specific collateral, giving the lender a remedy beyond simply suing for the balance if the borrower defaults.
Default terms decide what happens when payments stop
A well-drafted note defines what counts as default, what grace period (if any) applies, and what happens next — acceleration of the full balance, interest penalties, or pursuit of collateral.
Interest rates have legal limits
Usury laws cap the interest rate that can be charged on a loan, and the cap varies significantly by state and by the relationship between the parties — a rate that seems reasonable can still be unenforceable if it exceeds the legal limit.