Alabama Car Loan Laws

How much interest an Alabama car loan can carry

Two statutes split Alabama car financing by size. Section 8-8-5 of the Code of Alabama lets a lender and a borrower agree in writing to any rate on a loan or credit sale with an original balance of $2,000 or more. Almost every car contract clears that line, so for most buyers there is no state ceiling at all. The same section keeps the state's unconscionability rules in force, so a court can still refuse to enforce a grossly unfair deal.

The add-on limits work on the original amount for the whole term. On $1,500 financed for one year, the ceiling is $112.50 on the first $750 plus $75 on the next $750, or $187.50 in all. Above $2,000, the only limit is what you agree to, which makes the APR on your retail installment contract the number to compare. Run it through the car payment calculator before you sign.

Fees and taxes on an Alabama car purchase

• Sales tax. The state rate on automotive vehicles is 2% of the gross proceeds, and it applies to the net difference after the credit for your trade-in (Code §40-23-2). Local sales taxes may be added where you live, so ask the county license office for the full rate.
• Doc fee. We found no cap on dealer documentary fees in the Alabama Consumer Credit Act or the tax code. The fee is whatever the dealer sets, so ask for it in writing before you negotiate.
• Add-ons. Service contracts and GAP waivers are optional. Financing them adds to the balance you pay interest on.

What happens if you fall behind in Alabama

Alabama law gives car buyers no right to cure, meaning no required warning and no set number of days to catch up before the lender acts. Once your contract says you are in default, the lender may repossess without going to court, as long as it does not breach the peace. The rules come from Article 9A of Title 7, Alabama's version of the Uniform Commercial Code.

1. 1 Repossession. The lender or its agent may take the car without a court order if it can do so without a breach of the peace (§7-9A-609).
2. 2 Notice before the sale. The lender must send you notice before it sells or otherwise disposes of the car (§7-9A-611).
3. 3 Redemption. Until the car is sold, you can get it back by paying everything you owe plus the lender's reasonable expenses (§7-9A-623).
4. 4 The deficiency. If the sale brings less than the balance, you usually owe the difference (§7-9A-615). One exception: if the car's original cash price was $1,000 or less, you are not personally liable for the unpaid balance once the seller repossesses it (§5-19-13).

Our guides to repossession and the balance left after a sale explain what to do at each stage. Active-duty servicemembers have extra federal protection: a lender needs a court order to repossess if a payment was made before active duty began.

Where to check a lender and complain

Under §5-19-22, a company that makes consumer loans or takes assignments of consumer credit contracts in Alabama needs a license, unless it is a bank, credit union or another exempt institution. The dealer that sells you the car is exempt for its own credit sales, but a finance company that buys the contract is not. Title pawns and other small loans are covered on our sister site's Alabama lending laws page.

Questions people ask