What is a Promissory Note and what are its different types?

A Promissory Note is a contract wherein one party, (borrower or payer) makes an unconditional promise to pay an agreed-upon amount to the other party (seller or payee). There are certain terms and conditions to this agreement. It typically includes the principal amount, the interest rate and the date of maturity. In most cases, the payee’s rights are mentioned in the agreement. Signatures of witnesses are required in each and every Promissory Note in order to make it legally valid. In most notes, the signature of Notary Public is mandatory.

Types of Promissory Notes

There are 3 common types of Promissory Note. These are:

Earnest Money Promissory Note

When a buyer purchases a real estate, the seller may demand a certain amount of deposit money, which will show the buyer’s interest in making the purchase. Usually, the buyer signs an Earnest Money Promissory Note as an evidence of his/her good faith to buy the property. This Note details the amount of the earnest money deposit.

Delinquent Renters Promissory Note

Delinquent Renters Promissory Note is signed as legal evidence that compels a renter to pay late fees in case he/she is unable to make monthly rent payments on time. The terms and conditions are usually clearly specified in the Note, wherein the late fees are calculated on the outstanding principal balance of the Note.

Lease Options Promissory Note

Lease Agreement is a legal contract, which outlines the responsibilities of both owner and tenant for a specific real estate. It provides the details of obligations that both the parties are required to fulfill. Lease Options Promissory Note serves as an option to put the tenant at risk, that is, the tenant is obligated to make the rent payments on time.

It is advisable that you take help of a lawyer to fill out a Promissory Note. An attorney can help you out regarding how to fill out the form with accurate information.