❓What is a loan agreement?

A loan agreement is a detailed, legally binding contract between a lender and a borrower. It outlines the terms of a loan, including repayment schedule, interest rates, collateral (if applicable), and consequences for default.

If you're lending or borrowing a significant amount of money, a loan agreement helps ensure all parties understand their obligations. It often includes clauses for dispute resolution, amendment procedures, and confidentiality. Loan agreements are commonly used by banks, businesses, and even between individuals when the loan is complex or involves ongoing conditions.

❓What is a promissory note?

A promissory note is a simpler, written promise from one party to repay a specific amount of money to another party under agreed terms. It’s typically less formal than a loan agreement and is often used when the transaction is straightforward.

You might use a promissory note if you're lending money to a friend or coworker and want basic legal protection without the complexity of a full contract. It includes the repayment amount, due date, interest (if any), and signatures, but usually omits detailed legal terms.

❓How are a loan agreement and a promissory note different?

The main difference is complexity and detail. A loan agreement is more comprehensive and often involves legal review, while a promissory note is simpler and more informal.

If you’re looking for a flexible option for small, short-term loans, a promissory note might be enough. But if you're dealing with large sums, collateral, or long-term repayment, a loan agreement offers stronger legal protection. Choosing the right document depends on how much money is involved, how formal the transaction needs to be, and whether third parties (like banks) are involved.

❓When should you use a loan agreement?

You should use a loan agreement when the transaction involves significant amounts of money, long-term repayment, or additional terms like collateral or late payment penalties.

Loan agreements are especially important in business transactions, real estate financing, or when you're lending to someone you don't know well. This document helps avoid confusion and protects you if the borrower doesn’t meet their obligations. A platform like ROGER can help streamline the process of creating, sharing, and managing loan agreements securely.

❓When is a promissory note appropriate?

Promissory notes are best for straightforward, smaller loans where both parties trust each other and want a quick, simple record of the agreement.

You might use one when lending a few thousand dollars to a friend or making a short-term business advance. As long as the terms are clear, how much is owed, the due date, and any interest—this document can offer legal support without the bulk of a full contract.

❓Can a promissory note be legally enforced?

Yes, a signed promissory note is legally enforceable. Even though it’s simpler than a loan agreement, it’s still a binding contract if it includes essential terms and signatures from both parties.

If you’re the lender and the borrower fails to repay, you can take legal action using the note as evidence. Just be sure the document clearly states the repayment terms, any interest charges, and what happens in case of default. That said, more complex lending situations are better handled with a full loan agreement.

❓Should you use both documents together?

In some cases, yes. You might use a promissory note as part of a broader loan agreement package. The note outlines the repayment terms, while the loan agreement provides the legal framework, including dispute resolution, security interests, and other clauses.

If you're unsure which format is best, using both offers flexibility and extra protection. With a contract management platform like ROGER, you can create both documents, link them together, and keep everything organized in one secure place.

See what else we're writing about on the ROGER Blog