Promissory Note Minnesota: How Does It Work?
One of the most critical financial instruments in the credit industry is a promissory note. The document helps lenders and borrowers define clear terms on individual and commercial loans.
Besides guaranteeing payment to the lender, signing a promissory note also helps the borrower understand the legal implications of defaulting on loan terms.
Unfortunately, most people ignore this critical document, leading to far-reaching consequences and regrets.
If you’re a resident of Minnesota, here’s what you need to understand about a promissory note.
Promissory Note: Minnesota: An Overview
A promissory note is a legal contract, in writing, between a lender and borrower. The agreement proves an existing loan transaction and includes a promise by the borrower to pay the loan.
A promissory note contract is not merely a written document but a legally-enforceable agreement with terms and obligations. Thus, it is subject to the Contracts and Securities Laws.
Elements of a Promissory Note in Minnesota
When writing a promissory note, the first step is to decide the type of contract you want. In addition, the following information will come in handy:
- The date of creating the agreement
- Legal names and mailing addresses of both parties
- The principal amount
- The interest rates
- Payment information
- Your signature (borrower)
Types of Promissory Note
The state of Minnesota generally recognizes two types of promissory note:
A secured version of the promissory contract includes a security provision. The borrower can set aside a car, house, intellectual property or other valuables as security. If the borrower can’t pay the loan, the lender can retrieve the collateral. Secured promissory note, therefore, are ideal for huge transactions.
Unsecured Promissory Note
An unsecured version of a promissory note doesn't have collateral. The lender bears a high risk of financial loss if the borrower can't pay the loan. Without security, lenders can only rely on a small claims court to intervene in case of a dispute.
Promissory Note Minnesota: Interest Rates
Promissory note have varying interest rates, depending on the state jurisdiction. According to Section 334.01 of the Statutes, the legal interest rate for promissory loans is 6% per annum unless parties agree otherwise.
For transactions less than $100,000, lenders may not charge an interest rate exceeding 8% per year. However, for transactions exceeding $100,000, lenders can charge higher interest rates.
Promissory Note Minnesota: Payment Options
There are different payment options for promissory contracts. So, before you sign the contract, you should agree with the lender on a suitable plan that will meet your needs.
A lump-sum payment means you’ll pay everything, including the principal amount and accrued interest, in a wholesome. Usually, the payment plan is suitable for transactions involving a small loan. You only require the maturity date to pay the loan as it doesn’t have monthly installments.
Some lenders will want a “due on demand” payment where the debtor avails the money upon request. Such payment plans are majorly informal and do not have payment terms. Most due-on-demand loans are informal arrangements between friends and relatives.
Payment by Installments
Installment payment is among the most common payment options. In Minnesota, most lenders prefer a monthly installment with a scheduled plan. The plan includes the number of installments and what you’ll pay every month.
A balloon payment is similar to installments, except the monthly installments are the same. The lender will require you to pay equal installments every month and wind up with a lump sum payment at the end of the repayment period.
Do you wish to write a promissory note in Minnesota? We can help you fill out a ready template without going to an attorney's office. Please take advantage of this convenience by downloading a promissory note template from our website anytime.