What Is the Face Value of a Promissory Note?

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A promissory note represents a legally binding promise to repay a loan of money.
A promissory note represents a legally binding promise to repay a loan of money. (Image: Jupiterimages/Photos.com/Getty Images)

A promissory note is a document used to pledge repayment of a loan. It constitutes a legal promise to pay, and is enforceable by law. As a written contract, the promissory note carries specific features identifying the parties and terms. Promissory notes can be secured or unsecured, and always set out the amount of the loan and the repayment terms.

Parties

The parties to a promissory note are known as the promisor, the one who makes the promise to repay, and the promisee, the one who's the lender and who accepts the pledge. Other legal terms for these parties include the obligor and the obligee – the person or company to which the obligation is made.

Face Value

The amount of the obligation or loan constitutes what is due to the promisee. The promissory note itself has no face value. It isn't legal tender, although it can be transferred from one obligee to another. It does show the amount of the obligation or consideration due to the promisee by the promisor.

Terms

A promissory note sets out the terms of the loan: the number of installments over which the loan is to be repaid, the amount of each payment and the interest rate charged by the promisee for the loan. A promissory note can also be made payable on demand, either because the terms of the repayment haven't been met, or by agreement between the parties.

Security

The promissory note, by itself, represents an unsecured loan, meaning the lender has no claim on any property in case the borrower defaults or refuses to repay the loan. A lender can claim a lien on property as security for the loan, however, and this is the customary practice for mortgage companies, who file liens on the property which the loan is used to buy.

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