Deposits, purchase of securities, including promissory notes is an opportunity to save your money from inflation and provide yourself with passive income. If everything is more or less clear with deposits, then buying a promissory note attracts the attention of many depositors, but not everyone knows about what it is, the nuances and peculiarities of its purchase, risks and ways to return the money in case of force majeure. Before buying the first such document, it is worth studying the promissory note template, to understand what it is, how its registration and payment of money is carried out, and what are the obligations of the parties.
Features of a Promissory Note
Simple promissory note sample is similar to a debt receipt, this document obliges the promissor (the one who accepts the money) to repay the debt together with interest after a certain time specified in the document. In essence, a maker of a promissory note is a debtor who agrees to repay the amount borrowed by a certain time.
The promissory note is used both to borrow money from individuals and to formalize debt obligations between companies. The second option is more common. However, it is not uncommon for promissory notes to be issued even by financial institutions, such as banks.
The maker (debtor) himself determines what percentage he is ready to pay for the amount lent to him. The buyer of the promissory note (creditor) must determine for himself whether the terms are suitable for him and whether he is willing to lend money for this interest.
If you look at the promissory letter sample, you can see that the amount borrowed, the interest the promissory note maker is ready to pay and the date of expiration of the loan term are specified in this document. Also, the data of both parties, details on which the payment should be made, signatures and the date of the document are put there.
Possible Operations with a Promissory Note
A promissory note is a type of security, and it is allowed to carry out several options of operations with it, as well as with other types:
- issuance by the state, any organization, including banks;
- sale, for example, for the purpose of investment;
- accounting for the purpose of control to avoid the creation of counterfeit securities;
- settlement instead of funds (only by agreement of the parties);
- repayment of the borrowed amount together with interest according to the document.
Promissory notes have received strict control comparatively recently. Each document receives an individual series and number, which are entered into a single register, and any operations with it, including full repayment of the debt, are recorded in the system to exclude any kind of manipulation.
Main Differences Between a Promissory Note and a Bank Deposit
Standard promissory note is somewhat different from a deposit in a bank, primarily by the following characteristics:
- investments on a promissory note do not fall under the deposit insurance system, so if the bank goes bankrupt, the creditor will not be able to return his deposit;
- interest on the promissory note is always a little higher than on ordinary deposits, so its purchase is economically favorable (if risks are not taken into account);
- it is impossible to return the money on a promissory note ahead of schedule, while a deposit can be withdrawn at any time, of course, with loss of interest;
- tax is always levied on the profit on the promissory note, while it is not deducted from the deposit until a specific amount is reached.
There are considerably more risks associated with a promissory note, but the amount you can get from it is also considerably higher. Whether to issue a promissory note or to give preference to the usual deposit in the bank – the decision is always for the lender, both the first and the second option has its advantages and disadvantages. One of the most important advantages of a promissory note is the return of money strictly in the time specified in the contract. No postponements are assumed by law. If the date of payment is on a day off – it must be made on the first working day.
Risks When Buying a Promissory Note
The main risk when buying a promissory note is not to return the money paid for it. This situation can happen under the following circumstances:
- the promissory note is issued by fraudsters or a bankrupt company;
- incorrect execution of the promissory note (for example, wrong title, amount to be paid together with interest, creditor’s details to which the debt should be repaid, date and place of its drawing up, amount of interest);
- the promissory note maker sells or transfers the promissory note to another company, and already it should make payment on it (this legal event can entail a lot of problems);
- the bill is lost (this document is not made in electronic form and in case of its loss, the buyer needs to prove through the court that it was, for example, the act of purchase and sale, which should be drawn up necessarily at the time of purchase of the promissory note).
It is important to study all information about the organization that issues the promissory note before signing the agreement on the purchase of a promissory note to avoid falling into a trap and minimize the risks. It is also necessary to check once again the accuracy of the data of both parties specified in the document. It is best to consult with specialists when drawing up your first promissory note.
Refusal to Pay a Promissory Note
If the seller of a promissory note refuses to pay the due amount in the time specified in the document – it is impossible to do without going to court in most cases. Before creating a claim, the promissory note buyer must apply to a notary to confirm the lack of payment on the promissory note. In turn, the notary sends a request to the promissory note holder for payment of the debt. If the payment is not received within the specified time, the notary draws up an act of protest, and this document must be carried to the court during the drawing up of the lawsuit.
After the formalization of the claim, there are no standard court hearings, and the judge immediately sends the debtor a demand to pay the debt promptly. The promissory note holder can challenge it for 10 days, if there is no dispute – the creditor can apply to the bailiffs with the issued document.
As a rule, the majority of overdue promissory notes are returned in a judicial order. The only exception are situations when the promissory note holder turns out to be bankrupt and he does not have money to return the debt. Only in this case, it is almost impossible to recover the money invested.
Creating a Promissory Note
Legal individuals who need to work with documents can start using the PandaDoc templates and software. It offers its clients a wide range of tools. It is able to make working with documents much easier. Here you can create an electronic signature, and easily put it on all necessary contracts.