Minnesota Promissory Note: What Is It?
A Minnesota promissory note is a written contract between a lender of money and the borrower. The note identifies the parties, whether there is a co-signer, and the repayment terms. If there is a co-signer, the co-signer’s identity is also given. Minnesota promissory notes are subject to both contracts law and securities law. A Minnesota promissory note may be secured or unsecured. When a promissory note is secured, the borrower agrees to turn over specifically mentioned collateral to the lender to fulfill some or all of the outstanding loan balance.
What Is the Maximum Amount of Interest That May Be Charged?
The maximum amount of 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 then 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) play an important role in contract law and in collections 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 important to also 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 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 on to the account.
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 than 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 the parties.
- Waiver of Presentments. A waiver of presentments states that the lender does not need to be physically present at the time 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 o 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.
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