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Alabama Interest Rates Laws

Consumers are bombarded by advertisements claiming to lower their debt by signing up for a new credit card or personal loan, only to find out months later that the promotional rate was far better than the actual rate. But just how much is too high to be a legal interest rate? This varies by state. Alabama’s interest rate laws are outlined in the table below.

Code Sections Alabama Code Title 8: Commercial Law and Consumer Protection, Chapter 8: Interest and Usury
Legal Maximum Rate of Interest The legal maximum interest rate, if agreed upon in writing, is 8% per year, otherwise the maximum rate is 6% per year.
Penalty for Usury (Unlawful Interest Rate) If the interest charged exceeds the amount legally permitted by Alabama law, it’s usurious. If so, the contract can’t be enforced, except to pay the principal originally loaned. The borrower can also deduct from the principal any interest already paid.

However, usury as a defense to paying a debt can’t be claimed on a “holder in due course” (a person who purchased the debt and was assigned the right to receive the debt payments) of any negotiable instrument (like a check or note).
Interest Rates on Legal Judgments The interest rate for money judgments (other than costs) is typically 12%. If the judgment was based on a contract, then it’s at the rate of interest stated in the contract from the date of the cause of action, the breach of the contract. Judgments based on other actions, including fees allowed to a trustee, estate administrator, or attorney shall bear interest at 12% from the date of the entry of the judgment.

Past due child support is charged at 7.5% per year since September 1, 2011.
Exceptions Although the general legal maximum interest rate is 6% annually, there are many exceptions. Most exemptions are for specific types of public or non-profit groups or for loans where federal law applies, including all of the following which are exempt from Alabama’s usury laws:
  • Loans Over $2,000 – If the original principal balance of a loan or credit card sale is more than $2,000, than the interest rate can be more than the maximum 8% stated above, if not unconscionably high.
  • Debts Under National Housing Act – Debts or credit under the federal National Housing Act are exempt from Alabama’s interest rate laws
  • Veterans’ Benefits – Any credit benefits given to veterans under federal laws are exempt from the Alabama usury laws
  • Industrial Development Boards & Medical Clinic Boards
  • Bonds Issued by Public or Non-Profit Organizations – This exemption from interest laws also includes notes, warrants, and other securities issued by the State of Alabama or any non-profit organization acting in the public interest, including water & sewer boards or commissions.
  • Public Housing Bonds
  • State Education Securities – Education boards can issue interest-bearing securities or borrow money according to the rules of the education code, not the Alabama interest law section
  • Certain Public Hospital Corporations

If you find yourself in debt with exceedingly high interest rates, you may wish to consult an experienced Alabama consumer protection lawyer to see if your legal rights are being violated by the lender.

Note: Because laws change frequently, it’s important to verify any laws you’re researching by conducting your own legal research or contacting a knowledgeable attorney.

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