What is a negotiable instrument?

Definition and examples of a negotiable instrument

How a negotiable instrument works

Types of negotiable instruments

Do I need a negotiable instrument?

Definition and Examples of a Negotiable Instrument

A negotiable instrument is a written document in which one person promises to pay a specified amount of money to another person or organization. This document can specify a payment date or allow for payment on demand. A negotiable instrument constitutes a contract that outlines the agreement between the payer who signs it and the beneficiary who commits to pay the amount. The document must specify the amount of money and may include a specific date by which payment must be made or be available on demand. The agreement must be unconditional. This means that there is no other promise or condition involved besides the payment of money. The person holding the instrument can choose to transfer it to another person by signing it over.

How a Negotiable Instrument Works

Negotiable instruments exist as an alternative to cash in situations where someone wants to pledge or request payment of a specified amount of money. Individuals commonly use negotiable instruments like checks and money orders for everyday transactions where they need to request payment from someone. Both businesses and individuals can use negotiable instruments like promissory notes to finance purchases through loans. Borrowers must agree to repay the borrowed amount according to a specified financing plan along with any other costs such as interest.

Types of Negotiable Instruments

Common types of negotiable instruments include certificates of deposit (CDs), cashier’s checks, traveler’s checks, promissory notes, bills of exchange, and money orders.

Do I Need a Negotiable Instrument?

While there may not be an urgent need for them, negotiable instruments are useful, and you are likely to use at least one of them in your daily life. For example, you might use checks to pay your bills or give gifts without exchanging cash directly. If you obtain a student loan or a mortgage to cover these significant expenses, you will likely sign a promissory note as part of the borrowing process. You may also choose to put money into a certificate of deposit to earn interest and grow your savings.

Source: https://www.thebalancemoney.com/what-is-a-negotiable-instrument-5192257