If you need to borrow money from someone, you may make a promise to pay them back. Perhaps you will give them an IOU, or you will enter into a contract.
But in some cases, an IOU is too informal, and a contract is too formal. You need something in between that will assure the lender you will pay them back. This is a good situation for a promissory note.
Definition
A promissory note is a document in which you agree to pay someone money. It will state the exact amount of money you owe and when you must pay it. It is a legal agreement, but not as formal as a contract. Under Virginia law, it falls under a negotiable instrument because it is payable to a specific person, payable on demand, and only specifies the requirement to make the payment.
Elements
To have a promissory note, you need to have a few specific things. It must include the promise to pay an amount of money and the date by which you will pay that money. You must also sign it as the person who is making the promise to pay.
Keep in mind that you cannot include conditions and other details like you would in a contract. A promissory note is meant to be simple. You can include details about collateral, collection and discharge, but that is about the extent.
The idea behind a promissory note is to keep the transaction simple while offering the lender some type of protection should you decide not to repay the money you borrowed.
