Promissory notes are easy to understand: they are written promises that money will be paid to someone at a specific time. They’re more specific than IOUs, which simply acknowledge that debt exists, and because of this they are typically more legally-binding contracts. Popular forms of promissory notes in our society include both loan agreements and leases - contracts that promise a payment by a specific date and by a specific number.

Of course, a promissory note can come in many forms, as can the payments the promissory notes, um, promise. That means that a payment can come in installments - say, monthly installments as is common in mortgages - term payments, on-demand payments, and balloon payments. In this article, we’ll explore all of these types of payments frequently included in promissory notes.

First, let’s look at installment payments. An installment payment is essentially what many people choose to do when they sign a promissory note like a mortgage agreement - they agree to pay the money owed in installments. A monthly installment is a typical type of installment payment that you’ll see, although other arrangements could be worked out on an individual basis.

There are also term payments, which typically are tied into a specific length of time. They can also include installment payments, but individual “terms” can see a lot of variability from contract to contract.

On demand agreements can mean that something is paid for whenever it is used - think of your “on demand” home movies. You don’t pay for the movies unless you watch them - similarly, an “on demand” payment in a contract can mean that you only pay for something as much as it is used.

A balloon payment is made when much of the payments are saved for later in the life of a loan, which means that the interest has made the payments required much larger. The ballooning costs of keeping up with the loan as the interest has made the overall money owed larger is obviously where the term “balloon payment” gets its name. Typically, a balloon payment is a large payment or series of large payments that are paid later on in the life of a loan.

Each of these payment options can be included in the writing of a promissory note, which means that the terms of these promissory notes can be flexible. In many cases, however, promissory notes might only refer to mortgage agreements with fixed installment payment terms, or other similarly-predictable payment terms. However, any loan agreement can technically include any type of payment plan that both parties will actually agree to - as long as it is in writing, that is all the legal system really cares about.

Is there more to the story? Sure; there are a number of ways that loans can be paid off. The important thing to remember is that a promissory note should include the payment plan that works best for both the borrower and the lender - and whichever boat you find yourself in, that you work to make an accurate an honest promissory note that will leave both parties feeling like they’ve done the right thing.