Loan Agreement in Minnesota: Everything You Need to Know About Loan Agreements and Promissory Notes
What’s in your loan agreement? Are the terms favorable, and will you be able to repay every penny of the money owed without overstretching your budget? Can you stick to the terms of your agreement without risking your home’s foreclosure or the repossession of your home? These are some of the most important things that you need to ask and remind yourself every time you are thinking of getting a loan. You need to determine whether you can afford the loan or not, and most importantly, whether the terms of the loan will make it possible for you to repay the loan with ease and without incurring unnecessary expenses.
In a nutshell, you need to review the fine print of your agreement and where possible, negotiate the terms, or even walk away and look for better terms if the agreement you are about to sign is prohibitive or too expensive.
The primary reason for this is that once you sign the agreement, you will be tied down to the terms therein in the agreement, and in most cases, you won’t be at liberty to do what you want or walk away in case the terms don’t feel right. Remember that a loan agreement in Minnesota refers to the legally binding agreement between the lender and the borrower, an agreement that specifies the responsibilities of the lender and the borrower – to issue the loan amount agreed and to repay the loan amount (principal and interest) within the stipulated period. This agreement is also meant to protect the borrower because having a signed contract means that you have a point of reference in case of a disagreement, and for the lender, it means that you can legally institute specific measures outlined in the agreement in case the borrower defaults or generally fail to meet their end of the bargain.
To get started with these loan contracts, especially if you are planning to lend money to a relative or a friend, you first need to download our free Minnesota loan agreement form here. This sample loan agreement gives a comprehensive outlook of what a legal loan agreement should look like, and all the important sections to be specified in the agreement.
Loan Contracts vs. Promissory Notes
It’s also important to be aware of the differences between the loan agreements and promissory notes, with the biggest differentiating factor between the two being the fact that while the loan contracts are comprehensive with a number of sections outlining the terms of the agreement to be signed by the lender and the borrower, the promissory note is very simplistic – it’s enforceable with only the signature of the borrower and doesn’t have many sections, save for the part that specifies the value of the loan amount, the interest rate charged, and the date that the borrower promises to repay the debt.
Secured and Unsecured Promissory Notes
With the secured promissory note, there is a section that addresses the security provided for the loan. The security specified would be used by the lender to recover the debt due in case the borrower defaults.
The unsecured promissory note, on the other hand, has nothing about the security for the loan, and that means that the lender takes on a bigger financial risk offering the loan to the borrower. Often, this promissory note is used where a loan is given to close friends, family, and even acquaintances with a good credit score.
Thanks to a promissory note template or the sample loan agreement, you will have all the right numbers at your fingertips and won’t have to worry about whether your lender released the full amount agreed or if the borrower reimburses the full loan amount and all the accumulated interest.
Minnesota Interest Rate Laws
To protect consumers from usurious interest rates on loans, the state has put in place specific limits on interest rates charged. According to the state provisions of the SEC Act and the Usury Laws and Limits on Credit Card Interest Rates, the legal maximum interest rate that can be charged on loans in the absence of a written agreement is 6%, but the maximum rate of interest goes up to 8% in case of written contracts.
Lenders in contravention of these laws would have to void the contract with the high-interest rate, pay the borrower, or the borrower might recover the full premium and interest paid, along with the associated costs. For banks, credit unions, savings & loans facilities, the penalty for the usurious interest rate is the forfeiture of all the pay or interest, or the borrowers might recover up to twice the interest already paid.
For court judgments, the rate of interest used is the going interest on or even before the 20th Day of December.
However, dealers under the Securities Exchange Acts, state credit unions, savings and state banks/ associations, agricultural/ business, and mortgage loans are exempted from these laws. This also applies to the loans that are secured by the savings accounts and employee retirement income. Keep in mind that the usury laws also apply to promissory notes.
To get you started with the loan contract in Minneapolis, Duluth, Minnesota City, Saint Paul, Mankato, Bemidji, St. Cloud, Bloomington, or any other city in Minnesota, get our free loan agreement form today.