Payday Lending in Alabama

Payday loans in Alabama are legal but expensive. State law limits these loans to $500 for up to 31 days. This guide explains the rules, costs, and what to do if you need help.

What is a payday loan?

A payday loan is a small, short-term cash advance. You borrow a small amount of money and promise to pay it back, plus a fee, on your next payday. The law in Alabama calls this a "deferred presentment service."

How much does an Alabama payday loan cost?

State law caps the fee at 17.5% for every $100 you borrow. This means for a two-week $100 loan, the fee is $17.50. While this fee might seem small, it translates to a very high annual percentage rate (APR) of 456%. APR is a standard way to express the cost of a loan over a full year.

Here is what that looks like for common loan amounts over the maximum 31-day term:

What protections do Alabama borrowers have?

Alabama's Deferred Presentment Services Act provides several key consumer protections. These rules are enforced by the Alabama State Banking Department.

First, you cannot borrow more than $500 in total from all payday lenders at once. A state database tracks all loans to enforce this rule. Second, you cannot "roll over" or extend your loan. You must pay it back in full. After you pay it back, you must wait one business day before taking out another loan. This is called a "cooling-off period."

If you are an active-duty servicemember or a dependent, a federal law called the Military Lending Act applies. It caps the APR on your loan at 36%, which makes standard payday loans too expensive for lenders to offer to you.

What if I can't repay my loan on time?

You should contact your lender immediately to discuss your options. State law prohibits lenders from rolling your loan over into a new one. If you cannot repay, the lender may charge additional fees as allowed by law or pursue collection. Not repaying can hurt your credit and make it harder to get loans in the future.

How to file a complaint against a lender

You can file a formal complaint with the Alabama State Banking Department at no cost. This is the state agency that regulates payday lenders. If they find a lender broke the rules, they can order the lender to pay you back or even suspend their license. The department aims to resolve complaints within 30 to 60 days.

You can learn more and file a complaint on the Alabama State Banking Department website.

Cheaper alternatives to payday loans in Alabama

Before you choose a payday loan, consider these options. They are often much less expensive.

Employer-linked $0 APR advances

Some employers offer payroll advances. This is when you get part of your earned wages early. There is typically no fee or interest (0% APR). Check with your company's human resources department to see if this is an option.

Bank small-dollar loan programs

If you have a checking account, ask your bank. Some major banks offer small, short-term loans to their existing customers. For example, Bank of America (Balance Assist), U.S. Bank (Simple Loan), and others offer loans from $100 to $1,000. Approval is usually based on your account history, not your credit score. Their APRs are generally between 100–200%, which is high but still much lower than a payday loan's 456%.

Free tax preparation and EITC advances

Alabama households earning under about $60,000 may qualify for free tax preparation through the VITA program. A volunteer can help you claim the Earned Income Tax Credit (EITC). The EITC is a refundable tax credit, meaning you can get money back even if you don't owe taxes. This refund can be worth $1,000 to $6,400. You usually get this money about 21 days after filing your return.

Alabama LIHEAP energy assistance

The Low-Income Home Energy Assistance Program (LIHEAP) provides grants to help with heating and cooling costs. Households earning up to 150% of the federal poverty line can qualify. You apply through your local county office. Cases where your utility might be shut off are prioritized and can be processed faster than the standard 2–4 weeks. This grant does not need to be repaid.

A checklist before you borrow

1. Check the state database. Ensure you don't already have $500 in outstanding loans.
2. Calculate the total cost. Use the fee of 17.5% per $100 to know exactly what you will owe.
3. Explore the alternatives listed above. They could save you a significant amount of money.
4. Make a repayment plan. Be certain you can pay the full amount back on your due date to avoid extra costs.
5. Know your rights. Remember that rollovers are illegal and you have a one-day cooling-off period.

Payday lenders operate in many Alabama cities, including Huntsville, Birmingham, and Montgomery. For a broader look at other options, see our guide to payday loan alternatives.

Common questions from Alabama borrowers