Personal Loans in Alabama: What Licensed Lenders May Charge

How Alabama's rate limits work

Which rule applies depends on the size of the loan. The Small Loan Act (Title 5, Chapter 18 of the Code of Alabama) covers loans where the net amount you receive is less than $1,500. The Alabama Consumer Credit Act (Title 5, Chapter 19, often called the Mini-Code) limits finance charges on consumer credit under $2,000. At $2,000 and above, neither table applies.

Section 5-19-3 says plainly that its limits do not apply to credit of $2,000 or more; those charges are governed by Section 8-8-5. That section lets the parties agree to any rate on a loan with an original principal of at least $2,000, counts all direct and indirect charges as interest, and keeps the Mini-Code's unconscionability rules in force.

How Alabama compares with its neighbors

On the National Consumer Law Center's comparison of a $2,000 two-year loan from a licensed non-bank lender, Georgia caps the loan at about 32% APR, Florida at about 37%, Tennessee at about 49% and Mississippi at about 59%. Alabama has no numeric ceiling at that size. Your state of residence and the lender's license decide which rules apply, not where the lender is based. The state rules map shows every state side by side.

Who needs a license and who does not

Two licenses matter for personal installment loans, and the State Banking Department's Bureau of Loans administers both acts.

• Small Loan Act license (Section 5-18-4): required to lend less than $1,500 at charges above what an unlicensed lender may collect. A loan made in violation is void, and the lender may not collect principal or charges.
• Consumer Credit Act license (Section 5-19-22): required for creditors that make consumer loans to Alabama residents, whether or not they have an office in the state.
• Banks, thrifts and credit unions are exempt from both licenses. A bank may charge the rates its home state allows, and an online lender that partners with a bank may make loans through that bank. Ask who the lender of record is.
• Payday and title loans follow other Alabama laws. Our sister site Lendmira covers them on its Alabama lending laws page.

The Small Loan Act also reaches anyone who tries to avoid the license through a device or pretense, such as routing the loan through a third party or a sale of goods.

Late fees, early payoff and other borrower rights

The rights below are in the statutes. They apply to licensed lenders; read your agreement for the terms that apply to your loan.

• Late charge on a small loan: if the contract allows it, the greater of $10 or 5% of the overdue payment, once a payment is 10 or more days late (Section 5-18-15).
• Term of a small loan: no scheduled payment may come due more than 25 months after the contract date, and payments must be roughly equal.
• Paying early: a small-loan borrower who pays off early gets a refund of unearned precomputed charges, figured by the rule of 78s; the Consumer Credit Act lets you prepay a covered loan without penalty.

The rule of 78s gives back less than a simple-interest payoff would, so ask whether a loan is precomputed before you sign. Prepayment penalties explains how to read that clause.

Check a lender and file a complaint

1. 1 Look up the license in the Bureau of Loans licensee search at banking.alabama.gov, or in NMLS Consumer Access, before you apply.
2. 2 Keep the loan papers: the Truth in Lending disclosure, the agreement and any messages about fees.
3. 3 File a complaint with the State Banking Department's Consumer Affairs section online, or call (334) 242-3452 or toll free (866) 465-2279.
4. 4 Send a complaint to the CFPB as well if the lender is a bank or a bank partner, or if you are unsure who regulates it.

Questions people ask