An installment loan is a form of credit where money is borrowed and repaid in several scheduled payments. There are different laws in different states that apply to different aspects of installment loans. In Montana, for instance, the lender's legal category, the charges and fees, and the structure of payments matter just as much as the loan's advertised monthly amount. A 36% rate cap does not, on its own, describe the total costs or all the lenders.
Identify the lender and any collateral
The Montana Consumer Loan Act covers licensed consumer lenders. Banks and credit unions are generally exempt, though a loan acquired from a licensed lender keeps the chapter’s protections. Check the creditor’s legal status rather than relying on the website where you submitted information.
Look to the Division of Banking and Financial Institutions' license-verification resources to find the correct state or federal record. Consumer-loan licenses are verified electronically at NMLS Consumer Access. Confirm the creditor's legal name and Montana authority to the agreement.
With an unsecured personal loan, no property is pledged. With a secured loan, property is pledged. Default can result in loss of the collateral. With a loan secured by a vehicle, the risk of the loan should be evaluated along with the payment. The offer should not be viewed as an unsecured cash loan.
Separate the 36% interest limit from permitted fees
Section 32-5-301 of the Consumer Loan Act puts a cap on consumer loan interest at 36% annually, excluding permitted deferrals and past-due fees. This does not guarantee that every installment loan will have an APR capped at 36%.
This chapter allows for specified third-party expenses to be financed at the borrower’s option. Some examples of these expenses are filing fees, credit report fees, and insurance premiums. Ask what expenses are optional, who receives them, and if they are included in the principal amount borrowed.
| Fee | Statutory limit |
|---|---|
| Agreed deferral | The contract must allow the charge. For each deferral, the limit is 5% of the amount currently due or $15, whichever is higher, with a $50 maximum. |
| Past-due amount | The contract must allow the charge. Its limit is 5% of the past-due amount or $15, whichever is higher, with a $50 maximum. The same past-due amount can trigger this fee only once. |
Not all fees listed in advertisements are authorized fees. The chapter limits fees and charges to those specifically permitted, with an exception for strictly voluntary services following the completion and execution of the loan agreement. Request the lender to identify the authority for a charge that is not clear.
Consider the cost of credit through the APR, finance charge, and total payments for your actual offer. Then consider the principal against the cash given to you. Expenses financed can increase your balance due without increasing the cash available for your bills.
Check for simple interest and an unusual final payment
Loans made or refinanced under this chapter will be made using simple interest, and precomputed interest will not be allowed. Ask how interest will accrue between payments, and request a payoff amount for the date you intend to pay. Paying off a loan early does not mean that interest already accrued will be erased.
For loans covered by section 32-5-302, principal and interest payments generally follow a roughly regular schedule. The contract may skip dates to accommodate seasonal earnings. A monthly schedule must begin no later than 45 days after the loan is made. Balloon arrangements have a separate rule.
A balloon arrangement leaves a balance to clear on a specified date. For covered loans, each installment must pay at least all the interest built up since the preceding installment. The regular payments may therefore leave principal unpaid. Check the final amount against money you expect to have available, without assuming another loan will cover it.
Use the final agreement to make your decision
Loan agreements should name the creditor, state the amount, charge, and specify the payment date. Any property that is pledged should also be stated. Ask for the full payment schedule and compare the final payment to earlier payments. Place the payment dates next to your income and expenses. If your income is seasonal, factor in the times when you expect to have less income, e.g., during the off-season.
Lender eligibility standards and document requests vary. Identification, income records, and bank records may be requested, but a submitted request does not guarantee approval or funding. Ask which credit inquiry is used prior to approving it.
Keep the agreement and proof of payments. If you need a deferral, find out how much it will cost, and what effect it will have on the due dates later on. Get any adjustments in writing. If a fee or practice in lending appears inconsistent with the contract or Montana laws and rules, the Division of Banking and Financial Institutions can point you to where to file a complaint.