NoteFinancial Dictionary -> Loans -> Note
, a note
, or promissory note
is a contractual agreement by the creator of the note to make a payment of money
to a payee upon the completion of specified requirements or by a specified time in the future. Unlike IOU's, a promissory note is a legally binding contract that promises to pay, not just acknowledges the debt
. The most common form of promissory note is the Federal Reserve Note, which is the paper fiat currency
used in the United States, issued by the private Federal Reserve Bank of America. Technically they are a promise to pay the holder of the note its true value in gold
reserves, however money is no longer backed by reserves and is simply valued by public perception. Thus notes are now considered legal tender for "all debts, public and private".
The contract between a borrower
and a lender
for any kind of loan
can also be called a promissory note, even if it is not overtly related to the physical piece of paper like a bank note. For example a mortgage
contract is a promissory note that lays out the terms
of the agreement, such as the principal
amount, interest rate
, length of the term, repayment increments, any collateral
etc. In this case it is the borrower the borrower that must meet the requirements even though the lender probably drew up the agreement or note.
The person or entity that makes the promise is called the maker, and the person or entity that receives the promised payment is called the payee.