How Long is a Promissory Note Good For?
Before looking at how long is a promissory note good for, you should know that it's a financial document used to detail a loan agreement's terms and conditions.3 min read
Before looking at how long is a promissory note good for, you should know that it is a financial document used to detail a loan agreement's terms and conditions.
Promissory notes are varied. On one hand, they can be detailed and complex, covering a multitude of issues related to a contract. On the other hand, they can be straightforward, simple representations of what has been agreed to. Whatever the case, the general idea of a promissory note is that once it has been signed by everybody involved, it becomes a legally binding document that can be brought to court if one party fails to deliver what it has promised.
Because promissory notes are legally binding documents, there are serious consequences for people who default on them. States have varying statutes of limitations with regard to debt collection. These statutes will determine the period of time in which a creditor can take legal action if payment is not made. These statutes of limitation make specific reference to promissory notes.
Information Included in a Promissory Note
In many ways, a promissory note is like a written contract. However, its clauses are less extensive than those in a contract. A promissory note must include:
- The names of the people involved.
- The amount of money borrowed.
- The agreed-upon terms of repayment.
- The date the final payment was due.
- The interest rate.
- The borrower's signature.
Standard terms contained in a promissory note include:
- Identification of the parties involved.
- The amount owed.
- The amount of interest to be charged.
- The date on which payments must be made.
- The right to assign, or pass the obligation on to someone else.
- The place at which the note was entered into.
Property or other tangible assets are used to secure collateralized promissory notes. These assets can be repossessed if the borrower fails to fulfill his or her obligations in the promissory note.
When a legal action on a promissory note is enforced, the judgment allows the attachment of assets belonging to the debtor. This action usually takes two or three years to get through the courts. If the promissory note included an arbitration clause, the matter will take three to six months to resolve. A much faster and more surefire way of assuring collection against people who breach an agreement is to get them to pledge an asset to secure the note.