An installment loan allows you to pay back borrowed money over a series of scheduled payments. In Maryland, how a lender can charge you in interest and fees depends on the law that covers your loan. Before comparing offers, make sure to identify who the lender is and the law the lender must follow.
Maryland has more than one lending framework
You may see offers from banks, credit unions, and other authorized lenders. Some loans are unsecured. With these loans, you don't pledge any property to back the loan. Other loans are secured. Secured loans use property to back the loan. If you don't repay the loan, you may lose the property. The payment schedule doesn't tell you which Maryland interest and fee rules apply.
Maryland's Consumer Loan Law generally covers loans of $25,000 or less for personal, family, or household use. It excludes loans when some other Maryland credit laws have been selected in writing. One alternative is the Credit Grantor Closed End Credit Provisions, or CLEC. Lenders may choose to be governed by CLEC. Ask your lender which law applies to the offer so that you can verify against the proper limitations.
The license name can also be confusing. Maryland's licensing rules allow a consumer loan licensee to make qualifying non-mortgage installment loans without a separate installment lender license. Therefore, a company can be authorized under the consumer lender category without an installment lender license.
Interest and term limits for covered consumer loans
For current loans governed by the Maryland Consumer Loan Law, section 12-306 sets the limits below. The row applicable to your loan is determined by the original loan amount. For that row, interest is charged on the principal that is still due. Other lending laws have their own rules.
| Original principal | Maximum interest on unpaid principal |
|---|---|
| $2,000 or less | 2.75% per month on the first $1,000 of unpaid principal, plus 2% per month on any unpaid principal above $1,000 |
| More than $2,000 | 2% per month on the unpaid principal balance |
Multiplying the monthly rates by 12 gives 33% and 24% a year. Finding the yearly rate tells only a portion of the story about the loan. The disclosed APR and interest rate may differ because APR includes the interest and certain fees. APR accounts for when the payments are due.
| Original principal | Maximum repayment term |
|---|---|
| $700 or less | 30 months and 15 days |
| More than $700 but less than $2,000 | 36 months and 15 days |
| $2,000 or more | 72 months and 15 days |
A loan of exactly $2,000 is in different tiers in the two tables. The tiered interest limits for smaller loans apply, along with the longest maximum term. These are the legal limits, and a lender could set a shorter repayment term.
CLEC has a different interest rule. According to Section 12-1003, the effective rate of simple interest cannot exceed 24% a year. Different rules govern fees and other terms. The 24% interest cap is not a statewide cap on the all-in APR.
Verify the actual creditor
You can check a creditor's legal name and authority to lend through Maryland's financial provider search page. It links to the NMLS Consumer Access site and a different directory for Maryland-chartered banks and credit unions. If you can't confirm the status of the company, contact the Office of Financial Regulation to help you before you provide sensitive information or accept the loan.
Businesses that hold a Maryland consumer or installment lender license do so for their principal executive office. Starting July 1, 2023, businesses no longer need to hold a separate license for each location, but must disclose all locations to the regulator. A missing branch license does not mean the business is unlicensed.
Your loan matching service provider may give your request to a lender. Find out which creditor you will be obligated to by reviewing your loan contract. Also, determine which companies may get your personal information (contact information, income, and bank details) prior to sharing it.
Match the written costs to the money and payments
The amount you receive may be different than the amount you borrow. There may be fees added to the balance or fees taken out of the proceeds, if it's allowable by law. Compare the amount you would receive or have paid on your behalf to the amount financed. The APR, finance charge in dollars, and the total of the payments help show the cost. Ask for an itemized list of charges and check to see what each charge is for and if that is allowed.
Look at how much you'll pay each month and when payments are due. Count the total number of payments and note the amount of the last payment. A longer payment schedule will typically decrease the monthly payment, but increase the total cost of the loan. Look for collateral, late/returned payment charges, payment authorizations, and early payoff terms in the loan agreement. Early payoffs can save you money. Ask for an early payoff quote and look for an expiration date on the quote.
To decide whether to give you credit, a lender may look at your identity, income, employment, and bank records. The types of documents and credit standards vary by lender. Ask about the type of credit inquiry that a lender may perform if you are considering agreeing to a credit check. A hard credit inquiry may affect your credit score. An online request or initial estimate is not a commitment to fund your loan. It does not also mean that you will get the rate quoted to you or that you will get the funds on a specific date.
Now that you know how much you will have to pay, include those payments in your monthly budget. Use income you can count on and don't forget to include rent, food, and other essentials. Repayment should not put you in a position where you have to take out another loan or put you in a position where you have to miss an essential bill. Contact the biller to see if you can work out a payment arrangement.