Can an Alabama lender legally charge triple-digit interest on an installment loan? On a licensed loan of $1,500 or less, no. The Alabama Small Loan Act caps interest at 3% a month on the first $200 of the unpaid balance and 2% a month on the portion from $200 to $1,500. That works out to roughly 36% and 24% a year, under Ala. Code § 5-18-15.

The triple-digit prices in Alabama come from other products. Payday loans and title loans are governed by separate laws.

Who sets the rules, and who checks the lender

Two statutes cover installment lending in Alabama:

  • The Small Loan Act (Ala. Code § 5-18-1 et seq.). Its current text comes from Act 2017-373.
  • The Consumer Credit Act, known as the "Mini-Code" (Ala. Code § 5-19-1 et seq.).

Both are enforced by the Bureau of Loans, a division of the Alabama State Banking Department. The Bureau's compiled regulations were last updated in July 2026.

The department says any company making installment loans of $1,500 or less to Alabama consumers must hold a Small Loan Act license. That publication describes no separate path for lenders that operate only online. The department also offers a public licensee search, so you can check a lender before you sign.

The licensing system is changing. Since September 1, 2026, the department has moved these licenses onto NMLS, the national system already used for mortgage licensing. Existing licensees must file by December 31, 2026, or their license expires. The interest caps themselves did not change.

Alabama's small loan figures in one table

Rule What § 5-18-15 allows
Loans covered Original principal of $1,500 or less
Interest, standard method 3% a month up to $200; 2% a month from $200 to $1,500
Account maintenance fee Up to $3 a month, only if payments are at least $30 a month
Alternative method One-time acquisition charge up to 10% of principal, plus a monthly handling charge of about $12 to $26 depending on loan size
Term, alternative method 3 to 18 months, minimum payment $40
Longest term, any loan 25 calendar months
Late fee Greater of $10 or 5% of the installment, charged once per late payment, after 10 days
Early payoff Interest refund by the rule of 78ths
Rollovers Not stated in the statute text reviewed; the Mini-Code rules on extensions and refinancing apply

The rule of 78ths is a refund formula that assigns more of the interest to the early months. If you pay off early, you get back less than an even split of the interest would give you.

Some secondary summaries give different figures, such as a 12-month maximum term or a 4% origination fee. The statute text above is what governs. The sources for this guide do not give a rate cap for loans above $1,500, which fall under the Mini-Code.

Where the 36% ceiling stops

The cap covers licensed small loans and nothing else. According to Alabama Arise, payday loans can reach 456% APR. Title loans are treated as pawn transactions and can reach 300%. The same lender can offer both kinds of product, so read which one is on the contract. The payday rules in Alabama work very differently from the rules above.

We could not confirm whether any lenders in Alabama use bank partnerships or tribal status to avoid the caps. The sources reviewed for this guide do not address it. If a lender quotes you more than the caps allow and does not appear in the state's licensee search, treat that as your warning.

Those sources also do not cover credit union payday-alternative loans or state assistance programs. Ask your own credit union what small loans it offers before you borrow elsewhere.

If a mortgage closing is weeks away

An installment loan shows up in your mortgage file in two places:

  • Your bank statements. The deposit when the loan funded and the monthly payments leaving your account are both visible to the underwriter.
  • Your debt-to-income ratio. The monthly payment counts as debt when the lender measures what you can afford.

Expect the underwriter to ask for a letter of explanation covering what the loan was for and whether any of that money went toward your down payment. Before you pay a loan off to remove the payment from the ratio, ask your loan officer whether the payoff helps your file. Also ask what proof of payoff they need. Do this before you move any money, not after.