A promissory note, sometimes referred to as a note payable, is a legal instrument (more particularly, a financial instrument and a debt instrument), in which one party (the maker or issuer) promises in writing to pay a determinate sum of money to the other (the payee), either at a fixed or determinable future time or on demand of the payee, under specific terms. If the promissory note is unconditional and readily sale-able, it is called a negotiable instrument.
Difference from IOU:
Promissory notes differ from IOUs in that they contain a specific promise to pay along with the steps and timeline for repayment as well as consequences if repayment fails. IOUs only acknowledge that a debt exists. In common speech, other terms, such as “loan”, “loan agreement”, and “loan contract” may be used interchangeably with “promissory note” but a loan agreement or contract will typically be more detailed than a promissory note.
Difference from loan contract:
A promissory note is very similar to a loan. Each is a legally binding contract to unconditionally repay a specified amount within a defined time frame. However, a promissory note is generally less detailed and less rigid than a loan contract. For one thing, loan agreements often require repayment in installments, while promissory notes typically do not. Furthermore, a loan agreement usually includes the terms for recourse in the case of default, such as establishing the right to foreclose, while a promissory note does not.