A Maryland unsecured promissory note documents the conditions under which a borrower must pay back an unsecured loan to a moneylender. While an unsecured promissory note serves the same purpose as a secured note, one major characteristic differentiates the two (2) documents: the presence of collateral. Loans recorded in an unsecured promissory note are not protected by collateral. As such, the lender won’t be able to claim the borrower’s assets on the off chance they default on payment.
Because an unsecured loan carries a significant degree of risk for the lender, they will often charge higher interest rates than those prescribed in a secured note. The lender can minimize the likelihood of loan default by verifying the prospective borrower’s credit history, employment status, and references.
Secured Promissory Note – Contains the payment obligations for a collateralized loan.