Loan Note

DEFINITION of 'Loan Note'

An extended form of an IOU from one party to another that enables a payee to receive payments (possibly with interest) over a set period of time, ending with the date at which the entire loan is to be repaid.

Loan notes are usually provided in lieu of cash at the payee's request.

BREAKING DOWN 'Loan Note'

A loan note can help an individual investor avoid an undue tax hit resulting from a lump sum payment from a settlement or cash-out package from a company. In these cases, the individual is given a choice between cash or a loan note.

When loan notes are used between businesses, the purchaser is able to act as a borrower and make payments over time, often at a minimal or "at cost" interest rate.

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