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Loan companies are trying to secure collateral for larger amounts. This guarantees the ability to recover the borrowed funds when the borrower avoids repayments on time or simply loses liquidity. The collateral may be a mortgage, surety, pledge or additional insurance. Another form is the bill of exchange collateral for the loans. How does the loan obtained under a promissory note work?

When can we decide on a promissory note?

When can we decide on a promissory note?

A promissory note may constitute a security for a loan by promissory note only if the contract is between private individuals. They are so-called social loans. In online advertisements we can often find a loan offer from a private individual. In such a situation, a promissory note may be the security. Let’s start from the basics, however. What is a promissory note?

A promissory note is a security regulated by bill of exchange law. He has a provision for the unconditional payment of a specific sum of money to the resident. In other words, a promissory note allows a person granting a loan to initiate proceedings in the event that the borrower defaults and can also be used to pay off the remaining amount. Moreover, a bill of exchange agreement may contain a provision that the investor may at any time use the security to obtain a specific sum of money.

How is a promissory note loan concluded?

How is a promissory note loan concluded?

Promissory note collateral is often the last resort for those in debt with a negative credit history. A private person granting a loan for a promissory note does not check entries in BIK and in the databases of debtors, and also does not verify income. A promissory note has a specific amount that is the best security for borrowed funds. In other words, the loan can be granted for any amount of money. The maximum threshold will be determined by the value of the bill of exchange. Often, the value of the paper increases with third party surety.

Importantly, the borrower acquires the right to use the cash value of the bill of exchange at the time of signing the contract. It can therefore be sold or used as a means of payment. How to protect yourself from this? Just verifying investor credibility is not enough. A detailed civil law agreement should be drawn up, which will specify the conditions in which the money promissory note may be used by the lender. The condition should obviously be problems with the borrower’s repayment obligations.

How to protect yourself from cheaters?

How to protect yourself from cheaters?

Unfortunately, bills of exchange loans are often very risky. Let us remember that a promissory note written to our disadvantage gives the investor the right to enforce the amount that appears on the security even if we are paying back the loan reliably. Therefore, you should first make every effort to verify the credibility of the investor, and then write a favorable bill of exchange agreement, which will protect us from losing funds in a situation when we repay the next installment of the loan under the bill. In case of any doubts, it is worth seeking legal advice to check whether the bill of exchange agreement does not contain any dangerous provisions for us.    

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