South Dakota Promissory Note: What Is It?
A South Dakota promissory note is a contract between a lender and a borrower that documents the existence of a relationship between the parties as well as how the loan will be repaid. Promissory notes may be secured or unsecured. An example of a secured promissory note is a loan for a vehicle. If the borrower doesn’t follow the terms of the agreement, the lender has the legal right to repossess the vehicle. The vehicle acts as collateral to repay some or all of the outstanding balance. An unsecured loan does not include a promise of collateral.
What Is the Maximum Interest Rate That May Be Charged in South Dakota?
As long as the parties agree to the interest rate in writing, the lender may use any interest rate. If interest is not addressed in writing or if the parties don’t have a written agreement, the maximum amount of interest is 15% per year. Judgments are limited to 12% interest per year.
How to Write a South Dakota Promissory Note
To write a South Dakota promissory note, it is important to start by using the proper title. Secured notes should be titled as such to protect the lender’s legal interests. For example, Secured South Dakota Promissory Note. After the title, basic information about the parties and the loan is used to create the body of the contract:
- The creation date of the document. This is the date that the South Dakota promissory note is created. It is listed below the title of the document. The format for the date is month, day, and year. The creation date and the date that the document is signed help prove that the borrower accepted the loan and promised to repay it as well as helps create specific legal deadlines for certain activities, such as collections.
- Identify each party and their role in the agreement. To do this, use the full legal name of each party and list their role. For example, ABC Auto Financing, LLC, Lender. If there is a co-signer, they should be listed in this section.
- Document the mailing address of each party. Make sure to include the city or town, state, and zip code for each address. For secured South Dakota promissory notes, the borrower and any co-signer should also have their physical addresses listed if they are different from the mailing address. If the lender has both a primary mailing address for general contact and a payment processing address, the primary mailing address should be listed here. The payment processing address should be documented in the payment agreement section.
- Include the principal amount of the loan. This is the amount of money provided to the borrower without including the interest amount that will be charged on the loan. Before a South Dakota promissory note is signed and dated, it is important to make sure that this amount is correct.
- The interest rate charged on the loan each year. This is listed as per annum, yearly interest rate, or annual percentage rate (APR). If no interest rate is listed, the maximum amount that may be assessed is 15%.
- Payment agreement. This portion of the South Dakota promissory note explains how the borrower will repay the loan. The lender’s payment processing address should be listed in this section. It is also important to list the number of payments the borrower must make to repay the loan, the amount of each payment, and the due date for each payment. Late fee amounts as well as when they are charged should also be documented in this section.
Secured South Dakota promissory notes must also include a description of the collateral that the lender may take if the borrower does not comply with the terms of the note. If these details aren’t included, the court may hold that the promissory note is unsecured instead of secured. A clear description of collateral is essential.
Following the basic repayment agreement, a South Dakota promissory note then uses various clauses to create the terms and conditions of the loan. The following list is not a fully comprehensive list of clauses that may be used. It is a list of the most commonly used ones:
- Interest Due in the Event of Default. If the interest rate will be raised if the borrower defaults on the loan, the higher interest rate would be listed in this section.
- Payment Allocation. This clause explains how payments made on the loan will be split between the principal balance and the interest.
- Prepayment. This clause explains whether the lender will charge a financial penalty if the borrower pays the loan off before the end of the loan term. Paying the loan off before its scheduled end is known as prepayment.
- Acceleration. This clause explains the lender’s legal right to immediately demand full repayment of the balance if the borrower defaults on the agreement.
- Attorney Fees and Costs. If attorney fees and costs arise from one or both parties because of a dispute related to the promissory note, this clause explains how those fees and costs will be handled.
- Waiver of Presentments. Payments must still be made by the borrower even if the lender is not physically present at the time the payments are made.
- Severability. If one portion of the South Dakota promissory note isn’t valid, the remainder of the note is still enforced.
- Conflicting Terms. This clause explains how any conflicting terms within the note, if there are any, will be resolved.
- Notice. This clause states whether the lender will notify the borrower if they plan to file a lawsuit related to the promissory note.
- Governing Law. This clause documents the state whose laws will be followed to mediate or litigate a dispute related to the promissory note.
There is no legal requirement to have a South Dakota promissory note signed in front of a notary. To execute the note, it needs to be signed and dated by the borrower and any listed co-signer.
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