What is a promissory note?

Let's imagine for a minute that you want to borrow $5000 from your rich Uncle. After the initial shock wears off, he agrees to loan you the money. But before any exchange can take place, your uncle wants the specific repayment terms spelled out in writing and signed by both parties. This loan document would be considered a promissory note and is legally binding. No matter where you go or what you do with the money.
A promissory note should provide specific details on the amount of the original loan, known as the principal, the repayment schedule, and any applicable interest rate. It is not unusual for a promissory note also to contain details such as grace periods or penalties for defaulting. Although either party may draw up a promissory note, it's usually in the best interest of the lender to make sure all of the important elements are included. Individuals often use the services of a third party company such as One 2 One Lending to help guide them through the process and remove the emotions form the transaction. Once both parties sign a promissory note, the precise terms of that contract are the ones which will be enforced during any future legal proceedings.
A promissory note is not the same as an informal IOU. A personal IOU may acknowledge that a debt exists, but the specific repayment details may not be included. The borrower should hold onto this note until the loan becomes due, since it contains important information on interest rates and amount of the principal to be repaid.