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A promissory note is a legally binding agreement between a borrower and a lender that specifies repayment terms for borrowed money. There are two types: secured and unsecured. An unsecured promissory note offers no additional protection to the lender if the borrower fails to pay. Both types serve as simple agreements for loans, but secured notes require collateral (like a car or other valuable asset) to protect the lender in case of default. If a borrower defaults on an unsecured note, the lender must pursue legal action, such as through small claims court, to recover the debt. The unsecured promissory note primarily outlines the borrower's commitment to repay the borrowed amount.