Make a South Dakota Promissory Note

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 and help create specific legal deadlines for certain activities, such as collections.
• Identify each party and its 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.

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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.

A Sample South Dakota Promissory Note with Examples for Each Step

A South Dakota promissory note can be unsecured or secured. A secured promissory note should be titled as such ("Secured South Dakota 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 South Dakota 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 (in South Dakota, the parties to a written promissory note may agree, in writing, on any interest rate they like), 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 a late payment, and where/how payment is to be made.
• Allocation of Payments: This section describes how much of each payment will be applied to the 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 section 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 South Dakota 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 South Dakota, both unsecured and secured promissory notes must be signed and dated by the borrower and any co-signer; the lender need not sign. There is no legal requirement for promissory notes to be witnessed or notarized in South Dakota. 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 South Dakota

National Consumer Law Center

Credit Union National Association Guide to State Usury Laws                                                          

Help Center/Federal Student Aid      

CollegeScholarships.org

South Dakota Board of Regents    

University of South Dakota          

South Dakota State University