Alabama usury is 8%??

11 Replies

The searches I made online seem to say that the max usury in AL is 8%. Can this be right? Does that mean if you provide seller financing that the max you can charge your buyer is 8%.

That seems very low considering the risk of providing seller financing on a property. Does anyone have any different experience in AL?

Thanks.

Hi, I believe the usury rate in Al for a private investor is 10% or 5% over the fed funds rate, which right now means 10%. That is the rate most common for installment contracts. In Al, if you have a real estate broker negotiate the loan for you your loan is exempt from usury laws. This is an odd exception, but you can not simply find a broker to do your financing deal and avoid the rate imposed. The Boker does not have to be a party to the sale transaction, but they must actually negotiate, originate and do the financing for you. This is an example of southern politics at its best! I would seriously doubt that one out of a hundred real estate brokers would really know what they were looking at, but oh well...
So, 10% is your limit. You can find all this good stuff in Al. statutes, financing usury limits. Also, check with a local closing agent, they should know what is being done locally.
I'd like for you to contact me so that I can direct you to some info on seller financed deals that you should consider! Good Luck, Bill

Thanks for the info Finance. Are you working on some seller finance deals in AL? How do I contact you?

You may also circumvent usuary laws by loaning only for business purposes to entities.

Or you may simply involve a licensed individual holding a DRE license.

Originally posted by Bill Gulley:
Hi, I believe the usury rate in Al for a private investor is 10% or 5% over the fed funds rate, which right now means 10%. That is the rate most common for installment contracts. In Al, if you have a real estate broker negotiate the loan for you your loan is exempt from usury laws. This is an odd exception, but you can not simply find a broker to do your financing deal and avoid the rate imposed. The Boker does not have to be a party to the sale transaction, but they must actually negotiate, originate and do the financing for you. This is an example of southern politics at its best! I would seriously doubt that one out of a hundred real estate brokers would really know what they were looking at, but oh well...
So, 10% is your limit. You can find all this good stuff in Al. statutes, financing usury limits. Also, check with a local closing agent, they should know what is being done locally.
I'd like for you to contact me so that I can direct you to some info on seller financed deals that you should consider! Good Luck, Bill

I believe the actual section that one should be directed to is section 8-8-14(b)

(b) As an alternative to any other interest or finance charge allowed by state laws, and any law or regulation to the contrary notwithstanding, a lender or a vendor in credit sales, any financial institution operating in Alabama or any individual may, in connection with any credit sale, upon any type or class of loan, charge a maximum allowable rate on the amount of such loan or credit sale, not to exceed two percentage points above the prime rate at the time such loan or credit sales contract is executed; or if the debt is created under an open-end credit plan, the maximum finance charge in connection therewith shall be one and three-fourths percent per month on the first $750 or less, and one and one-half percent per month on the excess of any unpaid balance from time to time thereunder. For the purpose of this section, the prime rate shall be the average of the prime rates reported by the three largest banks in New York City as of the close of business three business days immediately preceding the date on which the loan or credit sale is made.

Alabama legal rate is 6% and most people think that the 2% additional allowed is above that for a total of 8%, but the actual wording seems to say 6% or 2% above the prime rate as defined by the 3 largest NY banks in the three days prior to the singing of the loan.

However, it is unclear as to who this applies to when you view section 8-8-5

(a) Any person or persons, corporations, trust, general partnership or partnerships, limited partnership or partnerships, or association may agree to pay such rate or rates of interest for the loan or forbearance of money and for any credit sales as such person, corporation, trust, general partnership, limited partnership, or association may determine, notwithstanding any law of this state otherwise prescribing or limiting such rate or rates of interest; provided, that the original principal balance of the loan or forbearance of money or credit sales is not less than $2,000; provided further, that all laws relating to unconscionability in consumer transactions including but not limited to the provisions of Chapter 19 of Title 5, known as the Mini-Code, shall apply to transactions covered by this section.

(b) As to any such loan or forbearance of money or credit sales made in compliance with subsection (a) of this section, neither such person, corporation, trust, general partnership, limited partnership, or association, nor their heirs, successors, or assigns, nor any surety, guarantor, endorser, or any other person, firm, partnership, association, trust, or corporation which may become liable, in whole or in part, for the payment of the debt and interest agreed to be paid thereon in accordance with the terms hereof, or any extension, amendment, or renewal thereof, may raise or claim the defense or benefit of the usury laws or any other law prescribing, regulating, or limiting such rate or rates of interest.

This section seems to defeat the usuary laws if by contract both parties agreed to the interest rate by saying that no one who agreed to such interest rate shall be able to claim the usuary laws as a defense as long as the loan is for more than 2000.00.

I find this particularly interesting! No I am not a lawyer, just quoting the actual Alabama state statutes as a layman.


If only I had a dime for every comma written in the law books!

Was that even English???

Not sure Will, but there is no doubt as to why the lawyer is needed to be on retainer!!!!!!!!!!

You got that right!

Originally posted by jawsette:
Originally posted by Bill Gulley:
Hi, I believe the usury rate in Al for a private investor is 10% or 5% over the fed funds rate, which right now means 10%. That is the rate most common for installment contracts. In Al, if you have a real estate broker negotiate the loan for you your loan is exempt from usury laws. This is an odd exception, but you can not simply find a broker to do your financing deal and avoid the rate imposed. The Boker does not have to be a party to the sale transaction, but they must actually negotiate, originate and do the financing for you. This is an example of southern politics at its best! I would seriously doubt that one out of a hundred real estate brokers would really know what they were looking at, but oh well...
So, 10% is your limit. You can find all this good stuff in Al. statutes, financing usury limits. Also, check with a local closing agent, they should know what is being done locally.
I'd like for you to contact me so that I can direct you to some info on seller financed deals that you should consider! Good Luck, Bill


I believe the actual section that one should be directed to is section 8-8-14(b)
(b) As an alternative to any other interest or finance charge allowed by state laws, and any law or regulation to the contrary notwithstanding, a lender or a vendor in credit sales, any financial institution operating in Alabama or any individual may, in connection with any credit sale, upon any type or class of loan, charge a maximum allowable rate on the amount of such loan or credit sale, not to exceed two percentage points above the prime rate at the time such loan or credit sales contract is executed; or if the debt is created under an open-end credit plan, the maximum finance charge in connection therewith shall be one and three-fourths percent per month on the first $750 or less, and one and one-half percent per month on the excess of any unpaid balance from time to time thereunder. For the purpose of this section, the prime rate shall be the average of the prime rates reported by the three largest banks in New York City as of the close of business three business days immediately preceding the date on which the loan or credit sale is made.


Alabama legal rate is 6% and most people think that the 2% additional allowed is above that for a total of 8%, but the actual wording seems to say 6% or 2% above the prime rate as defined by the 3 largest NY banks in the three days prior to the singing of the loan.

However, it is unclear as to who this applies to when you view section 8-8-5
(a) Any person or persons, corporations, trust, general partnership or partnerships, limited partnership or partnerships, or association may agree to pay such rate or rates of interest for the loan or forbearance of money and for any credit sales as such person, corporation, trust, general partnership, limited partnership, or association may determine, notwithstanding any law of this state otherwise prescribing or limiting such rate or rates of interest; provided, that the original principal balance of the loan or forbearance of money or credit sales is not less than $2,000; provided further, that all laws relating to unconscionability in consumer transactions including but not limited to the provisions of Chapter 19 of Title 5, known as the Mini-Code, shall apply to transactions covered by this section.

(b) As to any such loan or forbearance of money or credit sales made in compliance with subsection (a) of this section, neither such person, corporation, trust, general partnership, limited partnership, or association, nor their heirs, successors, or assigns, nor any surety, guarantor, endorser, or any other person, firm, partnership, association, trust, or corporation which may become liable, in whole or in part, for the payment of the debt and interest agreed to be paid thereon in accordance with the terms hereof, or any extension, amendment, or renewal thereof, may raise or claim the defense or benefit of the usury laws or any other law prescribing, regulating, or limiting such rate or rates of interest.


This section seems to defeat the usuary laws if by contract both parties agreed to the interest rate by saying that no one who agreed to such interest rate shall be able to claim the usuary laws as a defense as long as the loan is for more than 2000.00.

I find this particularly interesting! No I am not a lawyer, just quoting the actual Alabama state statutes as a layman.




Hi, yes this is correct for consumer loans, Bill

True for consumers. As I stated, businjess loans to entities are exempt from usury laws.

Originally posted by nationwidepi:
True for consumers. As I stated, businjess loans to entities are exempt from usury laws.


Yes, if the buyer is a business, it's considered a commercial loan. If the buyer is an individual consumer, even if (and especially by) a business entity such applies.
Chapter 19, Title 5 Definitions of a creditor to which the statute applies is any person or entity that provides more than 5 extensions of credit in the previous year. So, if an investor sells a property on an installment contract and did no more than 4 in the past 12 months, he is not considered to be a "creditor" under the code and the contract defaluts to 10% or no more than 5% over Treasury rate, which ever is greater. So since the TR is under 5% currently I think the max rate an investor can charge under these circumstance is 10%. Again, I'd call the closing agent in the area as local custom will dictate what is deemed acceptable, should anything blow up and end up before the circuit judge....Bill

This is part of the reason Alabama needs to get rid of its ancient and way too long constitution and redo it right.
Thanks for the good info those of you who posted above!

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