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A promissory note is a legally binding agreement between a borrower and a lender detailing repayment terms. There are two types: secured and unsecured. An unsecured promissory note offers no additional protection to the lender if the borrower fails to repay. It is a straightforward agreement that accompanies a loan. In contrast, a secured promissory note requires collateral, such as an automobile or valuable asset, that the lender can claim if the borrower defaults. If a borrower with an unsecured note defaults, the lender must pursue restitution through small claims or legal proceedings, especially for large sums. The purpose of the unsecured note is to formalize the borrower's promise to repay the loan.