A promissory note is issued in writing by the borrower stating that he/she will repay the money within a specific time and with certain amount of interest. Promissory notes are usually drafted for small amounts as it has some restrictions. In case of a real estate loan, a lien or mortgage is much preferred over promissory note.

The note includes the amount that needs to be repaid, the date of sanctioning and the last date of submission, names of the lender and borrower, reason for taking the loan, the rate of interest, terms of the loan, clauses leading to late payment, etc.

The promissory note is a part of negotiable instruments act of 1881 as the amount or time for the payment is negotiable depending on the promisor and promise. An unsecured money market instrument issued in the form of a promissory note is called Commercial paper. This was introduced in the year 1990 with a view to enabling highly rated corporate borrowers/ to diversify their sources of short-term borrowings and to provide an additional instrument to investors.

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