Types of Promissory Note

A promissory note is a negotiable instrument, which refers to unconditional, written and signed promise by the maker or issuer to pay a specific amount of money to a payee on demand or at a particular future date. A promissory note differs from IOUs and bill of exchange. In case of IOUs there is only acknowledgment of debt’s existence whereas promissory note has definite promise to pay. Similarly, bill of exchange involves three parties whereas the maker of a promissory note pays the payee personally. Some of the important types of promissory note are given below:

Types of Promissory Note

 

1. Inland Promissory Note

If the payee and drawer of promissory notes belong to a single country, then these notes are known as inland promissory notes.  Inland promissory notes are further divided into following two categories:

(a) Inland Joint-Promissory Note


If two or more than two persons draw then the note is called a collective or joint-promissory note. All these persons are responsible to make payments of this note. Lawsuit may be filed against all persons in case of failure of payment.

(b) Inland Individual -Promissory Note

Single owner or drawer of a promissory note is known as individual promissory note. This individual is responsible for the payment. If individual fails to make the payment then the lawsuit will only be filed against that individual only.

2. Foreign Promissory Note

If the payee and drawer of a promissory note belong to diverse countries then the note is known as foreign promissory note. This note is also divided into following two categories:

(a) Foreign Joint-Promissory Note


If two or more individuals draw a note then such note is known as collective or joint-promissory note. All these individuals are responsible to make its payment. Lawsuit may be filed against all individuals in case of any payment failure.

(b) Foreign Individual-Promissory Note

Single drawer of a promissory note is known as individual promissory note. Since only a single individual is issuing the note therefore, he/she will be responsible for the payments.

3. Demand Promissory Note

If the maker has funds to honor it, then he can prepare demand promissory note. The amount of this promissory note may be payable on the demand and payee of this note has right to claim a note when he wants to collect it. The maker of this note is prepared to pay amount on any day.

4. Interest Bearing Demand Promissory Note

The maker of this note is liable to pay amount with an agreed interest rate. This note is also payable on demand because as long it remains outstanding interest will also be payable for agreed time. 

5. After Date Promissory Note

The maker can issue after date note. The life of this note is stated in it and due date is calculated from date recorded on the face value of promissory note. 

6. Interest Bearing Promissory Note

Interest bearing promissory note is a note in which issuer and payee agree on specific interest rate which is stated in the note. On the due date, issuer has to pay interest and principle amount to the payee.

7. Joint Liability Promissory Note

These promissory notes are written collectively by two or more persons and it is joint liability of them. The payee has right to claim from all individuals. Therefore, all makers are liable to pay money due on note.

8. Post-Dated Promissory Note

The maker of this note can issue the date of next period. For example, the note may be issued in June but it may bear date up to July. All such notes are known as post dated.

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