Loan Agreement vs Promissory Note
A detailed comparison to help you choose the right option.
Loan Agreement
A comprehensive contract between lender and borrower that includes detailed terms, conditions, representations, and covenants.
Advantages
- Comprehensive protection
- Detailed terms and conditions
- Clear default procedures
- Suitable for large loans
Disadvantages
- More complex to create
- Longer negotiation process
- May be overkill for simple loans
- Requires more legal review
Promissory Note
A simpler debt instrument where the borrower promises to pay a specific amount under defined terms, focusing on the payment obligation.
Advantages
- Simple and quick
- Widely understood
- Good for straightforward loans
- Less intimidating to borrowers
Disadvantages
- Limited legal protections
- Fewer remedies for default
- Less detailed terms
- May not cover complex situations
Key Differences
- 1Complexity: Loan agreements are comprehensive; promissory notes are simple
- 2Parties: Loan agreements involve both parties; promissory notes focus on borrower's promise
- 3Terms: Loan agreements have detailed covenants; promissory notes have basic payment terms
- 4Enforcement: Loan agreements provide more enforcement mechanisms
Which Should You Choose?
Use a promissory note for simple, personal loans between family or friends where trust is high and amounts are modest. Use a loan agreement for business loans, larger amounts, or when you need detailed protections and enforcement mechanisms.
Related Templates
Ready to create your agreement?
Generate professional legal documents with AI assistance.
Get Started Free