Types of Negotiable Instrument

There a various types of negotiable instruments. The three basic types according to the Negotiable Instruments Act, 1881, are promissory note, bill of exchange, and cheque. A promissory note is exactly what it says a promise to pay someone a certain amount, an interest amount (if applicable), and a time frame when said payment(s) are to be made. An example would be a person wishes to sell their car and will provide financing for the buyer. The seller and buyer signs a promissory note for the amount plus interest, the time frame the note is to be paid by, and the monthly payments. An example of the Bill of Exchange would be someone has given a loan of say $10,000 to someone who has to return it by a specified amount of time. The person loaning the money can transfer this Bill of Exchange to another individual and the person that borrowed the money would have to pay the current holder of the Bill of Exchange. The last is the cheque which of course reflects purchasing a good or service and writing a check to pay for it.