North Dakota Loan Agreement

Introduction

Key Things to Know

1. 1

   Put simply, a loan agreement captures the amount, schedule, and interest on a North Dakota loan, and the rate you write in must stay under a floating ceiling that is never allowed to fall below 7 percent per year.

2. 2

   North Dakota caps interest with a floating formula. Under Century Code Section 47-14-09, the maximum contract rate is 5.5 percentage points above the average six-month Treasury bill rate for North Dakota over the prior six months, but the ceiling can never be less than 7 percent per year. Check the current ceiling before you set a rate above 7 percent.

3. 3

   If a written loan agreement does not state an interest rate, North Dakota applies the legal rate of 6 percent per year (Section 47-14-05). To charge more than 6 percent, up to the Section 47-14-09 ceiling, you must contract for the higher rate in writing.

4. 4

   You do not need a license to make an occasional private loan. North Dakota requires a money broker license only of a person who, in the ordinary course of business, arranges or provides loans as a form of financing (Chapter 13-04.1). A single private loan is not the ordinary course of business, and banks and credit unions are separately exempt.

5. 5

   Put the loan in writing and keep it. A lawsuit on a written contract must generally be filed within six years in North Dakota (Section 28-01-16). A written agreement is also required to charge more than the 6 percent legal rate, so writing the rate down protects the lender.

6. 6

   Set any late fee as a reasonable estimate of your costs. North Dakota does not set a flat statutory late-fee cap on a private written loan, so a late charge should reflect the real cost of a late payment rather than an arbitrary penalty. State the grace period and the fee clearly.

7. 7

   Spell out default and acceleration. Define what counts as default (usually a missed payment past a stated grace period), and include an acceleration clause so the lender can demand the entire unpaid balance at once if the borrower defaults.

North Dakota Requirements for Loan Agreement

• Maximum Interest Rate (Usury Cap)

  North Dakota caps the contract rate with a floating formula. Under Century Code Section 47-14-09, the maximum rate is 5.5 percentage points above the average six-month Treasury bill rate for North Dakota over the prior six months, but the ceiling may never be less than 7 percent per year. Because the number moves with the Treasury rate, confirm the current ceiling before setting a rate above 7 percent and state the rate as a number.

• Legal Rate When the Contract Is Silent

  If a written loan agreement does not state an interest rate, North Dakota fixes the legal rate at 6 percent per year (Century Code Section 47-14-05). To charge more than 6 percent, up to the Section 47-14-09 ceiling, the parties must contract for the higher rate in writing. Always write the agreed rate into the agreement so the 6 percent default does not apply by accident.

• Written Agreement Required Above 6 Percent

  North Dakota allows more than the 6 percent legal rate only when the higher rate is contracted for in writing (Century Code Section 47-14-05). A verbal promise to pay a higher rate is not enough. Put the agreed interest rate in the signed loan agreement so the lender can charge above 6 percent up to the Section 47-14-09 ceiling.

• Lender Licensing (Money Broker)

  A North Dakota money broker license, administered by the Department of Financial Institutions, is required only of a person who, in the ordinary course of business, arranges or provides loans as a form of financing (Century Code Chapter 13-04.1). An individual making an occasional private loan is not acting in the ordinary course of business and generally does not need a license. Banks and credit unions are separately exempt. If you lend repeatedly as a business, confirm whether you must be licensed.

• Usury Penalty

  Contracting for interest above the Section 47-14-09 ceiling makes the loan usurious in North Dakota, which lets the borrower reduce or avoid the excess interest and can subject the lender to the forfeiture penalties in Chapter 47-14. Keep a private loan at or below the current usury ceiling and write the agreed rate into the agreement so you can show the loan was within the lawful limit.

• Late Fees Must Be Reasonable

  North Dakota does not set a flat statutory late-fee cap on a private written loan. A late charge should be a reasonable estimate of the lender actual costs from a late payment, not a penalty. State the grace period and the late fee clearly in the North Dakota loan agreement so both sides know when the fee applies.

• Default and Acceleration

  Define default clearly, usually a payment missed past a stated grace period, a broken promise in the agreement, or the borrower insolvency. Include an acceleration clause so that on default the lender may declare the entire unpaid balance of principal and accrued interest immediately due. Stating any required notice and cure period avoids disputes about whether acceleration was proper.

• Time Limit to Sue on the Debt

  A lawsuit to collect on a written loan agreement must generally be filed within six years in North Dakota, running from the default or from the last payment or written acknowledgment of the debt (Century Code Section 28-01-16). Keeping a signed, dated written agreement gives the longer, easier-to-prove period if you have to collect.