What does a promissory note establish in terms of borrowing?

A promissory note serves as legal evidence of the debt incurred between a borrower and a lender. When a borrower signs a promissory note, they are formally committing to repay the borrowed amount under the specified terms. This document outlines important details such as the amount borrowed, the interest rate, and the terms of repayment, thereby creating a legally binding obligation.

The note is an essential part of the borrowing process, as it not only demonstrates that a loan has been made but also provides protection for the lender by giving them a legal avenue to pursue in the event of non-payment. This legal standing is crucial in financial transactions, ensuring that both parties understand their responsibilities and rights regarding the debt.

While elements like credit rating, loan rates, and repayment schedules are significant in the context of borrowing, they are not the primary function of the promissory note itself. The note explicitly establishes the existence of the debt, making it a foundational document in the borrowing process.