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A promissory note is a legal agreement between a borrower and lender detailing the repayment terms of a debt. There are two types: secured and unsecured. A secured promissory note provides lenders with extra assurances through collateral, which is typically a valuable asset like a motor vehicle or real estate. This collateral ensures the lender recoups their investment if the borrower defaults; the lender may possess the collateral in case of non-payment. Secured promissory notes are advisable when borrowers lack sufficient liquid capital to cover the loan amount, though they are ineffective if the borrower doesn’t have collateral to offer.