When an individual takes out a loan, be it for educational costs, the purchase of a home or virtually any other task, they will likely be required to complete a promissory note. Simply put, a promissory note acts as a "promise" made by the borrower to the lender that they will repay the money they have been given in accordance with the terms and conditions established by the loan agreement. Once the borrower has fully satisfied the terms of loan repayment, it is up to the lender to return the note with the distinction added that the loan has been paid in full. There is no separate satisfaction and release form that is required during this process. Fortunately, this can be accomplished using a few relatively straightforward steps.
Once the terms of loan repayment have been met, the lender should return the promissory note to the borrower, making sure that they have notated that the loan has been paid in full. This process can be accomplished quickly and easily by the lender.
The Basics of Promissory Notes
As mentioned earlier, a borrower can find the full terms of their loan payment in the promissory note they receive from the lender. They will typically be required to review this information in full and then sign the note before they are granted access to any funds. For the lender, the promissory note is a form of legal protection in the event that the borrower decides for whatever reason to default on their payment obligations.
From a legal perspective, a promissory note falls somewhere between a contract and a more informal note such as an IOU. Although the promissory note is not as rigidly enforceable as a contract, it remains a potent tool in the event that an issue of non-payment heads to some form of litigation.
Completing the Promissory Note Process
The promissory note itself remains an important document even after the terms of the loan have been met. In fact, the lender has an obligation to ensure that the promissory note reflects the fact that the loan has been fully repaid. Typically, this can be accomplished by simply adding some form of "Paid in Full" notation to the document. This can be as simple as a handwritten note, or something as elaborate as a stamp. In either scenario, this statement must be accompanied by the signature of the loan officer or lender responsible for overseeing the loan.
After the promissory note is thoroughly notated, this document should be returned to the borrower, either through the mail or in person. Once the borrower has received the completed promissory note, it is typically customary for them to contact the lender and let them know that that the document has been received. This helps ensure that both parties have the clarification they need to move forward to future financial transactions.
Final Thoughts on Promissory Notes
The satisfaction and release of a promissory note is entirely dependent on the completion of the specific terms included in the document. Because of this, it is critical that borrowers carefully review this document before signing it, even if they have already reached a verbal agreement with their lender on specific repayment terms.
This warning does not mean to imply that lenders are somehow untrustworthy, but rather the fact that even small details related to interest rates or repayment could have significant financial ramifications over time. With that in mind, the burden of reviewing this information does entirely rest on the shoulders of the borrower.
Ryan Cockerham is a nationally recognized author specializing in all things innovation, business and creativity. His work has served the business, nonprofit and political community. Ryan's work has been featured at Zacks Investment Research, SFGate Home Guides, Bloomberg, HuffPost and more.