Payday Loans in Alabama and What State Law Allows

Payday lending is legal in Alabama. A licensed lender can advance you up to $500 against your next paycheck and charge a fee of up to 17.5 percent of the amount. On a two-week loan, that works out to an annual rate of about 456 percent.

The state calls these loans deferred presentment transactions. They are governed by the Deferred Presentment Services Act, which is Title 5, Chapter 18A of the Code of Alabama and was passed in 2003. If you are a few weeks from closing on a house, the law is only half the question. The other half is what one of these loans does to the file on your underwriter's desk. Both are covered below.

Every payday lender must be licensed by the Alabama State Banking Department (banking.alabama.gov). The department's Bureau of Loans examines licensees and enforces the Act under Chapter 155-2-4 of its regulations. As of this writing, the most recent compiled version of that rulebook is dated July 2026.

The key figures below come from the statute, the department's FAQ and a DebtHammer summary of the Act, checked in September 2026.

The $500 limit applies to everything you owe on payday loans at once, not to each loan separately. Before 2015 there was no way to enforce that. A borrower could take $500 from several lenders on the same afternoon. That year the Alabama Supreme Court upheld the department's authority to require a shared tracking system, in Cash Mart, Inc. v. Alabama State Department of Banking.

The resulting database is run by the vendor Veritec. The department's FAQ says lenders must check it before making any new loan and must close the record once the loan is paid off. Extended payment plans also have to be recorded in the database. The sources here do not spell out the terms of those plans, so ask the lender or the department before you agree to one.

Take a $100 loan for 14 days. The maximum fee is $17.50. There are about 26 two-week periods in a year, so paying that fee every two weeks all year produces an annual rate of 456.25 percent. The shorter the term, the higher the annual rate the same fee produces.

That math is why the 2019 "30 Days to Pay" bills (HB 258 and SB 75) would have set a 30-day minimum term. Alabama Daily News reported that the change would have brought the effective rate down to roughly 220 percent. The current minimum term remains 10 days.

An auto title loan is not a payday loan. According to Alabama Arise, title loans can reach 300 percent APR. They are also treated legally as pawn transactions, so no state agency collects data on them.

Traditional installment loans made under the 1959 Small Loan Act are capped at 36 percent APR.

The sources used for this guide do not address online or tribal lenders. They also give no Alabama figures on credit union payday-alternative loans or state assistance programs. Treat those as open questions and ask your own credit union what it offers.

Here is what the law does establish. Anyone making a deferred presentment loan in Alabama needs a Banking Department license, so check the department's licensee search before you share your bank account details. You can file complaints at (334) 242-3452 or (866) 465-2279.

Your lender reads the bank statements you hand over. A payday loan shows up there as a deposit followed by a withdrawal in 10 to 31 days, and a rollover shows up as a repeat of that pattern. Unexplained deposits and withdrawals like these are what underwriters tend to ask about.

Before you apply, ask your loan officer three things:

• Will they want a letter of explanation for the loan?
• Will an open balance count as a monthly debt in your debt-to-income ratio, which is your monthly debt payments measured against your income?
• Would paying the loan off and closing it in the database before you apply change either answer?

Rules differ from lender to lender. Ask now, while there is still time to act on the answers.