An installment loan spreads repayment over a period of time. In Colorado, the cost rules depend on the product and on the lender's authority. The cost method for a loan product where the lender charges a set acquisition and monthly handling fees is different from a loan product where the lender charges interest on an unpaid balance.
Identify which Colorado loan rules apply
This section will address personal, family, or household loans governed by Colorado's Uniform Consumer Credit Code. Determine if the offer is an interest-bearing consumer loan, a small loan under the alternative provisions in C.R.S. Section 5-2-214, or another product. Deferred-deposit payday loans have provisions of their own, even if they utilize an installment system. The small-loan fee schedule below should not be applied to a mortgage, a revolving account, a bank, or a credit union product, without confirming the product's governing rules.
A supervised loan is a covered consumer loan with a finance-charge rate above 12% a year. For a closed-end supervised loan priced under section 5-2-201, the finance charge ceiling is based on the greater of two methods: 36% a year on the first $1,000 of unpaid balances, 21% on the portion above $1,000 through $3,000, and 15% on the portion above $3,000; or 21% on the entire unpaid balance. A lender can use an equivalent single rate in that range. This is not a universal 36% APR cap for all Colorado installment loans. Other charges, rules, and exceptions can impact this.
Small loans can use acquisition and monthly handling charges
Supervised lenders may use the alternative charges in Colorado's Consumer Credit Code, section 5-2-214, for a covered consumer loan in which the amount financed is no greater than $1,000. The alternative charges replace the ordinary loan finance charges and are not fees in addition to those charges.
The acquisition charge is capped at 8% of the amount financed. The monthly handling charge is limited to:
| Amount financed | Maximum monthly charge |
|---|---|
| $100–$300 | $8.50 |
| $300.01–$500 | $11.50 |
| $500.01–$750 | $14.50 |
| $750.01–$1,000 | $17.50 |
These loans must have a term of six to twelve months and substantially equal payments at equal intervals. The lender cannot take collateral or charge a delinquency fee under this pricing method. Certain statutory exceptions, including a permitted dishonored-payment fee and reasonable collection attorney fees, remain. A lender may refinance such a loan no more than once in one year.
Hypothetical example: A $1,000 loan over 6 months with the maximum $80 acquisition charge and six $17.50 handling charges has $185 scheduled finance charges. If a borrower gets $1,000 and pays it back in 6 equal monthly installments starting one month later, the payments are $197.50, totaling $1,185. The estimated APR is about 60.9%. This is a hypothetical example and is not an available offer. It shows that limiting dollar fees does not ensure that an APR is low.
Check the application and the lender
According to Section 5-2-214, an application for each loan must be signed and dated, and accompanied by an income document dated within the last 45 days (i.e. a pay stub). While some lenders require a bank statement for verification, the consumer is permitted to remove the names of payees for the debits for which the statement is being provided. These documentation requirements pertain to this loan category; other lenders and products may require different documentation.
Before disclosing sensitive information, locate the legal name of the lender, and verify the legitimacy of the lender. The Consumer Credit Unit of Colorado has regulated lender records and a complaint process. Banks and credit unions may have a different regulator and authorization.
When you make a request through a loan matching service, your request may be sent to other companies. The lender named in the offer makes the credit decision and determines the terms. Consider the sharing and credit-check consent before submitting a request. The fact that a loan product is permitted by a state does not mean that a lender will provide it to you.
Early repayment can require a refund of unearned charges
For consumer credit transactions, prepayment without penalty is authorized by section 5-2-210 for covered transactions when the consumer prepays the loan balance in full or makes a prepayment of at least $5. When prepaying the loan, it is important that the creditor understands that the payment is a prepayment, rather than a payment on a future due date. Request a payoff statement for the date you intend to make the payment.
For an alternative-charge loan, early payoff requires a refund of the unearned portion of the acquisition and handling charges using the statutory rebate method. A contracted minimum finance charge of no more than $10 may apply to that calculation. In the Colorado Administrator's Rebate Interpretation, it says the two charges are combined before the refund is calculated. Do not assume that an acquisition charge is always kept in full.
Compare the written offer with the expense you need to cover
Compare offers of similar amount and term using the actual amount you'll receive, APR, finance charge, and total payments. A loan agreement should include the payment dates, any collateral, the permitted late or returned payment charges, and early-payment terms. If a delinquency fee is not included in a Section 5-2-214 loan, that doesn't mean the debt is eliminated, nor does it eliminate the consequences of not making a payment.
Place expected payments next to anticipated income and essential bills. If the schedule does not work, a long-term loan or refinancing can extend the problem and increase the cost. Before taking a loan you cannot repay, contact the biller and ask about payment arrangements or consider other methods of paying the bill.