An installment loan is repaid through a series of scheduled payments. The first question in Arkansas is who is making the loan? Arkansas has a general interest limit and rules for certain banks which are different, so a monthly payment alone cannot tell you if an offer is lawful or affordable.
When Arkansas's 17% interest limit applies
Section 3 of Arkansas Constitution Amendment 89 says loans and contracts outside of the other provisions of the state government and of federally insured banks can't charge more than 17% interest per year. The maximum interest rate is a legal limit on lending rather than the interest rate you're guaranteed to get.
Section 2 contains a different rule for qualifying federally insured banks and savings associations with their main offices in Arkansas. The amendment also retains applicable federal law. Federal laws can impact the rates charged by other banks and federally chartered credit unions. Therefore, the limit of 17% is not a cap on all the loans available to Arkansas residents.
If the interest rate is more than 17%, identify the creditor as named in the contract and ask what legal authority supports the rate. A website's location, a bank's logo, or a statement that some other state's law applies is not sufficient to answer the question. A loan offered through a nonbank website might name a bank as the creditor, in which case you should look to the agreement.
Legal installment options and high-cost payday offers
Contact banks, credit unions, and nonbank lenders to find out if they provide personal installment loans to Arkansas residents. Product availability, membership requirements, loan amounts, and eligibility vary. An unsecured loan does not require you to pledge an asset; a secured loan requires you to name collateral that may be at risk if you default.
Restrictions in Arkansas on payday lending don't necessarily prohibit all personal loans with scheduled payments. However, extending a high-cost loan over a longer period or calling it an installment loan doesn't make an illegal loan offer legal. The Arkansas Attorney General has stated that illegal high-interest payday loans can also be disguised as installment loans.
The office's payday lending information and complaint guidance can be helpful if an online offer seems to be evading Arkansas law. Keep the offer and agreement for review. Get help with the specific contract before deciding that a loan is unenforceable or stopping repayment.
Read the rate and fees together
The interest rate and APR serve different purposes. Interest rates describe the interest charged under a credit agreement. The annual percentage rate (APR) is the cost of credit on an annual basis, and includes the interest as well as other financing charges. Compare the total of payments, amount financed, APR, and finance charge in the written disclosures.
Do not automatically consider a fee outside Arkansas's interest limit just because the lender labels it an origination, processing, or service charge. Courts analyze the real substance of a charge. Charges that reimburse a lender for its overhead or that provide the lender an extra profit may be considered interest for a usury analysis. The treatment of a true, bona fide, third-party charge may be different.
An APR above 17% doesn't necessarily mean that a contract breaks Arkansas law. Likewise, having an interest rate below 17% doesn't necessarily mean that a contract follows Arkansas law if there are other charges. The creditor and the applicable law govern the treatment of the charges. Ask for a written explanation of charges if unclear. If the legality of the rate remains unclear, seek assistance of an attorney or the appropriate regulatory authority.
Identify the lender before sending an application
When you submit a request through a loan matching service, your request may be forwarded to potential lenders. The lender in the agreement makes the loan. Review the service's privacy notice to determine who may receive your information and contact you. Submitting a request doesn't guarantee you'll get a loan offer or be approved.
Verify the creditor through the regulator responsible for that institution. Arkansas State Bank Department supervises Arkansas state-chartered banks. Other banks and credit unions may have different state or federal regulators. A business registration or an unrelated license doesn't establish authority for the specific loan. If a nonbank claims an exemption, obtain the basis for it and check it out.
Your loan application will be subject to the conditions established by your lender. This may include submitting your identification, proof of income, proof of bank accounts and/or authorization for your lender to request your credit report. Ask your lender if an initial eligibility check would be a soft or hard credit inquiry. Find out when a subsequent inquiry may be made. Have documents showing any income you may have reported as variable or as self-employment if you expect to be asked to do so. Having documents prepared in advance will not determine approval or funding time.
Choose a schedule you can repay
Consider the payment amount, frequency, first due date, and final payment when reviewing a loan agreement. Payments are not always monthly payments, and smaller regular payments may require a longer term and/or a larger final payment. You may want to compare the total scheduled repayments with the cash you expect to receive, and factor in any fees, which may be taken out of your proceeds.
Ask about early payoff balance changes and whether any permitted early-payoff charge or refund applies. Don't assume all loans in Arkansas are the same with respect to prepayment provisions. When considering a refinancing proposal, review the new proceeds, additional charges, and total remaining repayment with respect to keeping the current loan.
Place each payment next to the date you receive income and pay essential bills. If the schedule requires another loan to pay ordinary expenses, ask the biller about a payment arrangement or consider a smaller borrowing amount. If a payment is likely to be difficult, contact the lender as soon as possible. Make any payment arrangement changes in writing.