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A promissory note is a legally binding agreement between a borrower and a lender that defines repayment terms. There are two types: secured and unsecured. An unsecured promissory note lacks collateral, meaning the lender has no additional protection if the borrower defaults. In contrast, a secured promissory note involves collateral like an automobile or another valuable asset to safeguard the lender’s interests. If a borrower with an unsecured note defaults, the lender must pursue restitution through legal channels, such as small claims court. An unsecured promissory note serves to stipulate how the borrower will repay the borrowed amount, outlining specific terms in the document.