Unsecured Promissory Note is a legal financial instrument that outlines a borrower’s promise to repay a loan without pledging any collateral. Unlike secured notes, which are backed by assets such as property or equipment, unsecured notes rely entirely on the borrower’s creditworthiness and integrity. These notes are commonly used between individuals, businesses, or investors seeking short-term funding arrangements.

In an unsecured promissory note, the document typically includes essential details such as the principal amount, interest rate, repayment schedule, and maturity date. Since there is no asset security involved, the lender assumes higher risk. To compensate for this, interest rates are often slightly higher compared to secured lending options. The agreement also includes terms for default, late payment penalties, and dispute resolution to ensure transparency between both parties.

Such notes are widely used for personal loans, business financing, or inter-company borrowings. However, investors and borrowers should carefully review the terms before signing. It’s advisable to document the agreement in writing and, if possible, register it legally to avoid future disputes. For businesses, maintaining clear records helps in compliance and accounting transparency.

From a regulatory standpoint, unsecured promissory notes are not considered securities under SEBI regulations when issued privately between parties and not offered to the public. Therefore, they must not be marketed as investment products or substitutes for regulated instruments. Individuals engaging in such agreements should seek proper legal or financial advice before entering into any arrangement.

In summary, an unsecured promissory note is a useful tool for short-term lending when trust and documentation are well established. Clear terms, legal awareness, and mutual understanding form the foundation for a secure and transparent financial agreement.