What is Promissory Note?
Types of Promissory Notes:
Usance and On-demand Promissory Notes:-
When the date of maturity of a promissory note is after a certain period of time in future, it would be known as Usance Promissory Note whereas if the maturity date is on-demand it is called as On-demand Promissory Note.
Interest Bearing and Interest-free Promissory Notes:-
If the loan or credit is for short term period mostly there is no interest on the other hand if the credits/loans are issued for the long term period, interest can be applied on the sum of money. Thus such promissory notes will be known as interest-free or interest-bearing respectively.
Negotiable and Non-negotiable Promissory Notes:-
If the promissory notes are able to draw in the favour of any third party endorsed by the creditor, it will be known as Negotiable whereas if it is issued in the favour of the creditor and further can not be endorsed to any other party will be known as Non-negotiable promissory note.
Features of Promissory Note:
- A Promissory Note is a written document (written promise of payment) not oral.
- It is an unconditional, clear, unsecured certain sum of payment.
- There is no need to sign the second party/ drawee who is going to receive payment on a specified date.
- It is a legal document duly signed and stamped by the issuer/ debtor.
- Promissory Note is a negotiable financial instrument which can be endorsed to the third party by the creditor, this means the beneficiary can be any third party in spite of creditor.
- The due date or date of maturity could be flexible with the mutual agreement of both the parties (debtor and creditor). Sometimes, it may decide after a specific period of a certain event like date of shipping or date of delivery of goods or writing date of the promissory note.
- The credited/ loan amount can be in the instalments as well.
- There could be a single or joint debtors/ drawer in a promissory note.
Parties in a Promissory Note:
There are mainly three parties involved in a Promissory note which are described below.