Alabama’s Consumer Credit Act – enforced by the State Banking Department – is designed to control the cost of installment loans and protect Alabama residents. The act limits the annual interest rate lenders can charge. It works like this: $15 per $100 on the first $750 you borrow and $10 per $100 for amounts exceeding $750 but less than $2,000. If you happen to default on the loan, you’re allowed a 10-day grace period to come up with the funds. After 10 days, the lender can impose a late payment fee of $18 or 5% of the default amount. However, the late payment fee cannot exceed $100.
For loans of $300,000 or more, the maximum repayment term is 36 months and 15 days. For loans less than $300,000, the maximum repayment term is 25 months and 15 days.
For smaller loans, lenders must abide by Alabama’s Small Loan Act. The legislation limits interest charges to 3% per month for loans less than $200 and 2% per month for loans between $200 to $1,000. Similarly, late payment fees cannot exceed $18 or 5% of the amount in default, but the maximum repayment term is 12 months.
When breaking down both documents, we found some overlap between the two statues. It isn’t entirely clear which act loans in the $751 to $1,000 range must abide by. Thus, before taking out an installment loan, make sure you ask the lender which regulation the loan falls under.
