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A promissory note is a legally binding contract between a borrower and a lender, detailing repayment terms for money owed. There are two types: secured and unsecured. A secured promissory note offers lenders extra security, as it includes collateral, which can be a valuable asset like a vehicle or real estate, ensuring the lender can recover their investment in case of default. The lender may take possession of the collateral upon non-payment. Secured promissory notes are particularly useful when a borrower lacks sufficient liquid capital to repay the loan, but they are ineffective if the borrower does not own valuable assets.