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A promissory note is a legally binding agreement between a borrower and a lender specifying the repayment terms for borrowed money. There are two types: secured and unsecured. An unsecured promissory note does not provide the lender with collateral protection if the borrower defaults, meaning the lender may need to pursue legal action for repayment. In contrast, a secured promissory note is backed by collateral, such as an automobile or valuable asset. While both types serve as simple agreements for a loan, the secured note offers the lender added security against potential default. An unsecured note outlines the borrower’s commitment to repay the loan without any collateral.