What legal document binds a borrower to repay a loan?

What legal document binds a borrower to repay a loan?

• A. Loan Agreement
• B. Promissory Note
• C. Mortgage Deed
• D. Credit Contract

Answer: (B)

The correct answer is the Promissory Note. A Promissory Note is a legal document in which the borrower formally agrees to repay the loan amount, along with any applicable interest, over a specified period. This document outlines the terms of the loan, including the repayment schedule, interest rate, and consequences of default. Essentially, it is a promise from the borrower to the lender, creating a legally enforceable obligation to repay the funds borrowed. It is important to note that while a Loan Agreement might detail the broader terms of the mortgage or loan process, the Promissory Note is specifically the instrument that ensures the borrower commits to repaying the loan itself. The Mortgage Deed, on the other hand, secures the loan by giving the lender a claim to the property in case of default but does not itself obligate the borrower to repay. Similarly, a Credit Contract may refer to various types of credit agreements, but it does not specifically bind a borrower to the repayment of a loan in the same manner as a Promissory Note does. Thus, the Promissory Note is the fundamental document that creates and establishes the borrower’s obligation.

The correct answer is the Promissory Note. A Promissory Note is a legal document in which the borrower formally agrees to repay the loan amount, along with any applicable interest, over a specified period. This document outlines the terms of the loan, including the repayment schedule, interest rate, and consequences of default. Essentially, it is a promise from the borrower to the lender, creating a legally enforceable obligation to repay the funds borrowed.

It is important to note that while a Loan Agreement might detail the broader terms of the mortgage or loan process, the Promissory Note is specifically the instrument that ensures the borrower commits to repaying the loan itself. The Mortgage Deed, on the other hand, secures the loan by giving the lender a claim to the property in case of default but does not itself obligate the borrower to repay. Similarly, a Credit Contract may refer to various types of credit agreements, but it does not specifically bind a borrower to the repayment of a loan in the same manner as a Promissory Note does. Thus, the Promissory Note is the fundamental document that creates and establishes the borrower’s obligation.