Make a Minnesota Promissory Note

What Is the Maximum Amount of Interest That May Be Charged?

The maximum interest that may be charged in Minnesota depends on the balance of the loan and what is agreed upon by the parties. If an interest rate is not listed in the Minnesota promissory note, the maximum interest rate is 6%. However, the legal interest rate written into promissory notes is 8% unless the amount loaned is greater than $100,000.

How to Write a Minnesota Promissory Note

When creating a Minnesota promissory note, the first decision is whether the note is secured or unsecured. If the note is secured, the title should read either Secured Minnesota Promissory Note or Minnesota Secured Promissory Note. Without the proper title, a legal dispute may mean that the court treats the agreement as unsecured. A promissory note, regardless of whether it is secured, must identify the parties and outline the scope of the agreement between the parties:

• The date that the parties agreed to enter into the promissory note. This date is directly below the title. It is written as month, day, and year. The proper date for creation (and the date with the signatures) plays an important role in contract law and collection activities.
• Identify each party by their legal name and their role in the contract. The parties to a Minnesota promissory note are, as mentioned earlier, the lender and borrower. There may also be a co-signer. All parties should be identified by their legal name as well as their role. For example, ABC Auto Financial Loans, Ltd., Lender.
• The mailing address for each party. If the promissory note is secured, it is also important to include the physical address for the borrower and any co-signer. If the lender has a separate payment address, the payment address should be listed with the repayment information.
• The principal amount provided by the lender. A Minnesota promissory note should list the principal amount of the loan separate from the interest rate charged. Before executing the agreement, make sure that this amount is accurate.
• The amount of interest charged. This is the amount charged each year for the loan. In Minnesota, the maximum interest rate is 8% (if interest is listed in the agreement) unless the borrowed amount is greater than $100,000. If a lender charges more than the legal maximum, they could face serious legal problems.
• Repayment information. Minnesota promissory notes must include information on how the loan will be repaid. This is most often referred to as installments. Installments are payments made on a loan. Installments may be weekly, biweekly, or monthly. The note should include the number of installments that must be made, the amount of each payment, the due date for each payment, and whether there is a late fee. The late fee amount should be listed as well as when it will be added to the account.

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Secured Minnesota promissory notes must also include information about the collateral that may be collected if the borrower defaults on the loan. Without this information, a court may hold that the note is unsecured.

Following the information that creates the scope of the agreement between the parties, there are some basic clauses that should be used to define the terms and conditions of the loan agreement. The following isn’t a full list of applicable clauses, but explains some of the most commonly used ones:

• Interest Due in the Event of Default. If the borrower defaults on the agreement in some way, this clause explains how much interest the borrower will be required to pay. It may be different from the initial interest agreed to within the contract, but it may not exceed the state’s maximum.
• Payment Allocation. This clause explains how the received payments are split between the principal balance and the amount charged for interest.
• Prepayment. Prepayment occurs when the borrower pays off the loan before the end of the contractual term. This clause informs the borrower whether there is a penalty for prepaying the loan.
• Acceleration. Acceleration means that the lender has the legal right to demand payment of the balance of the loan immediately if the borrower defaults on the agreement.
• Attorney Fees and Costs. In the event of a legal disagreement, this clause explains how attorney fees and costs will be handled between them.
• Waiver of Presentments. A waiver of presentments states that the lender does not need to be physically present when the borrower makes payments.
• Severability. This clause states that if a portion of the Minnesota promissory note is not enforceable, the rest of the agreement remains valid.
• Conflicting Terms. A conflicting terms clause explains how any conflicting terms within the contract will be remedied.
• Notice. A notice clause tells the borrower whether the lender will notify them if they plan to sue the borrower for default.
• Governing Law. This clause is important because it lists the state whose laws will be used if there is a legal disagreement over the contract.

There is no legal requirement to have a Minnesota promissory note notarized. It should be dated and signed by the borrower, the lender, and any applicable co-signer. It is also advisable to have a witness sign as well.

A Sample Minnesota Promissory Note with Examples for Each Step

A Minnesota promissory note can be unsecured or secured; promissory notes in Minnesota are regulated by contract and securities law. A secured promissory note should be titled as such ("Secured Minnesota Promissory Note" or "Minnesota Secured Promissory Note"); it must also be further identified with specific language and requires a detailed description of the security interest (the property that will serve as the collateral). A secured promissory note should include the following section:

• Security and Priority: In this section, the borrower and lender (payee) agree that all obligations under the note will be secured by the collateral defined in the security agreement entered into between the borrower and lender. This section contains a general description of the collateral explicitly defined in the security agreement.

A secured promissory note is generally accompanied by a security agreement that allows the lender to seize the collateral (specific property) in the event of default by the borrower.

The security interest in the specific property should be outlined in a UCC financing statement. When the financing statement is filed with the appropriate government agency, the lender's interest in the specific property is deemed "perfected," giving the lender top priority over future lenders seeking a security interest in the same property.

Both unsecured and secured promissory notes in Minnesota should include the following sections:

• Definition of Terms: This section includes a list of terms and their meanings used in the loan agreement  ("As used in this Agreement, the following terms shall have the meanings set forth below").
• Payments: These are provisions relating to the terms for repayment of the amount due, including principal and interest, overdue amounts, default/nonpayment rate, manner of payment, and extension. This section should specifically note the date the promissory note was devised, the name and mailing address of the borrower and lender, the amount of money loaned to the borrower, the amount/annual percentage rate of interest to be charged (as allowed by applicable Minnesota state law governing maximum interest/usury rates for written contracts), how repayment will be made (installments, interest-only, lump sum, or, in the case of a secured promissory note, a balloon payment), the number of payments, the amount of each payment, the due date of each payment, any late fee to be charged for late payment, and where and how payment is to be made.
• Allocation of Payments: This section describes how much of each payment will apply to interest/principal.
• Guaranty/Co-Signer (optional): In this section, a third party (the guarantor) agrees to be directly or collaterally responsible for the obligation of the borrower to the lender in the event of default (the borrower fails to pay).
• Representations & Warranties: This clause explains the facts and protections in the event of default, respectively, if the statements made are not true.
• Covenants: A covenant in a loan agreement requires the borrower to fulfill certain conditions, such as punctual payment of principal, or prevents the borrower from taking certain actions.
• Defaults/Interest Due upon Default: This section defines the events that constitute a default and the interest due upon default (as allowed by applicable Minnesota state law).
• Acceleration: This section requires the borrower to repay the remaining balance in the event of a default.
• Prepayment: This section states whether there will be a prepayment penalty or if the borrower is allowed to pay a sum of money to the lender before it is due/demanded without a penalty for doing so.
• Attorney Fees and Costs: This section describes which party will be held responsible for attorney fees and court costs should a case be filed and adjudicated in court due to a default.
• Waiver of Presentments: This section allows the lender to receive payment without presenting the promissory note.
• Non-Waiver: This section states that the entire promissory note is not waived if either party waives a certain section of the document.
• Severability: This section states that the rest of the promissory note will still be valid should a particular section be found illegal or incapable of enforcement.
• Integration: This section states that the promissory note constitutes the entire agreement between the parties.
• Conflicting Terms: This section states that an amendment will resolve any issue(s) and be determinative should the promissory note include terms that conflict.
• Notices: This section states the required form of all notices, requests, demands, claims, and other communications under the note, including notice to the borrower that the lender may seek a judgment against the borrower without notice and the addresses to which all official or legal correspondence should be delivered.
• Governing Law: This section defines the state law that will govern the promissory note.
• Dated Signature: In Minnesota, both unsecured and secured promissory notes should be signed and dated by the borrower, any co-signer, the lender, and a witness. There is no legal requirement for promissory notes to be notarized in Minnesota. Still, the parties may decide to have the document certified by a notary public for protection in the event of a lawsuit.

Promissory Note Resources in Minnesota

National Consumer Law Center

Credit Union National Association Guide to State Usury Laws                                                          

Help Center/Federal Student Aid      

CollegeScholarships.org

The Office of Minnesota Attorney General Keith Ellison   

Minnesota Office of Higher Education (OHE) SELF Loans                      

Minnesota State   

Education Minnesota   

Lutheran Social Services (LSS) of Minnesota Financial Counseling