What is a promissory note?

A promissory note is a financial instrument that serves as a written promise from one party (the borrower) to pay a specified sum of money to another party (the lender) under agreed-upon terms. It specifically outlines the loan repayment terms, including the amount borrowed, interest rate, due dates for payments, and the obligations of both parties regarding the repayment. This document is legally binding, making it enforceable in a court of law if the borrower fails to comply with the payment terms.

In contrast, a loan application form is used to request a loan but does not contain the detailed repayment terms or obligations associated with an actual loan. A lease agreement pertains to the renting of property and governs the relationship between a landlord and a tenant, separate from loan agreements. A transfer document for property ownership deals specifically with the conveyance of real estate rights and interests, rather than loan arrangements. Hence, the correct choice accurately reflects the purpose and nature of a promissory note.