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A promissory note is a legally binding agreement between a borrower and a lender, detailing repayment terms for money owed. There are two types: secured and unsecured. A secured promissory note provides lenders with extra assurance through collateral, typically a valuable asset like a motor vehicle or real estate, which ensures the lender can reclaim value in case of default. In non-payment situations, the lender possesses the collateral. Secured promissory notes are particularly useful when a borrower lacks sufficient liquid capital to cover the loan amount. However, they are not effective if the borrower does not have valuable assets to offer as collateral.