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A promissory note is a legally binding document between a borrower and a lender detailing repayment terms for a loan. There are two types: secured and unsecured. A secured promissory note provides lenders extra security through collateral, typically a valuable asset like a vehicle or real estate, ensuring repayment even if the borrower defaults. The lender can claim the collateral in cases of non-payment. Secured notes are particularly beneficial when borrowers lack sufficient liquid capital to cover a loan amount. However, they are less effective if the borrower does not possess valuable collateral.