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A promissory note is a legal agreement between a borrower and a lender detailing the repayment terms of a loan. There are two types: secured and unsecured. A secured promissory note provides lenders with added security through collateral, such as real estate or vehicles, which can be claimed if the borrower defaults on the payment. This collateral helps ensure the lender recovers their investment. Secured promissory notes are particularly useful when borrowers lack sufficient liquid capital to repay the loan. However, they are not beneficial if the borrower does not own valuable assets to secure the loan.