By Type (2)
Secured Promissory Note – Sets aside a physical item such as a home, vehicle, or boat that is given to the lender if the borrower enters into default and cannot recover. The item in security should be in similar value to that of the balance to minimize loss to the lender.
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Unsecured Promissory Note – Does not include a section on security. This results in the lender being far more vulnerable, as he or she has the possibility of losing the loaned balance. The lender should take the time to screen potential borrowers to ensure they have a strong credit history.
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