What Is a Promise to Pay Agreement?

When you take out a loan, you are considered a borrower. The person that lends you the money is the lender. To ensure you pay the loan back as agreed, the lender can request you to sign a written promise to pay agreement, also known as a promissory note.

Types

Types of promissory notes include a demand note, payment may be demanded by lender at anytime; a simple note; one lump some payment at one time; an installment note, monthly or yearly payments of the same amount; and an open-ended resolving note, line of credit arranged by the borrower and lender.

Terms

Terms identified in a promissory note include the name of the lender, borrower and any cosigner, the loan amount, repayment dates and amounts, interest rates, miscellaneous fees and any other clauses.

Modification or Termination

Once a borrower and lender sign a promissory note, both parties are legally bound to the terms of the contract, unless both parties agree to modify or terminate the note.

Warning

If you sign a promissory note that includes an acceleration clause, the entire amount becomes due once you miss a payment.

Prevention

The Federal Truth in Lending Act was enacted to prevent unfair or inaccurate billing practices by lenders.

References

• Expert Law: The Promissory Note
• Contract, Notes and Guaranties