When looking for an installment loan in North Carolina, know the lender and the law concerning the offer before comparing costs. The rules in the Consumer Finance Act govern covered loans. Merely advertising a loan, credit, or bank product as an installment loan does not mean the rules in the Consumer Finance Act govern that product.
Which loans fall under the Consumer Finance Act?
The North Carolina Office of the Commissioner of Banks issues licenses to lenders of covered consumer term loans of $25,000 or less at rates above those authorized by Chapter 24. Banks and credit unions are exempt from the Consumer Finance Act, and a retail installment purchase or a revolving line of credit may also be exempt from the same Act.
Covered Consumer Finance Act loans cannot be secured by a mortgage or deed of trust on real property. The following rules pertain to direct consumer loans within a defined category and do not apply to all transactions defined as an installment loan. The agency's consumer finance guidance explains the loan categories, costs, and repayment protections.
A loan matching service may send your request to another company. Make sure you have the actual creditor's legal name and who will receive your information before you accept an offer and/or send sensitive documents.
Interest tiers depend on the original loan amount
The original amount of the loan dictates which interest rule is applied. If the amount of the loan is $12,000 or less, the tiered rates in the table would limit interest charged on the remaining principal. If the amount of the loan is more than $12,000, the annual interest would not exceed 18% of the principal remaining due.
| Original loan amount | Portion of unpaid principal | Maximum annual interest |
|---|---|---|
| $12,000 or less | First $4,000 | 33% |
| Above $4,000 through $8,000 | 24% | |
| Above $8,000 | 18% | |
| More than $12,000, up to $25,000 | Entire Outstanding Principal Balance | 18% |
The applicable rule stays tied to the original amount. So, a loan that began above $12,000 still has an 18% ceiling, even if the balance goes down to less than $12,000; it does not move into the higher first tier. The Act says interest follows the unpaid amount financed and the actual number of days the loan is outstanding. The Act prohibits the collection of interest up-front or the compounding of interest on the same loan.
Hypothetical tier example: Let's say you take out an original $6,000 covered loan at the max tier rates. The first $4,000 would accrue $1,320 of annualized interest, and the remaining $2,000 would accrue $480 of annualized interest. That would be a total of $1,800 of interest, which would be 30% of the initial loan amount. This is not the total interest charged for an installment repayment schedule. The balance changes as the principal is repaid. Charges and timing of the payments also affect the total cost.
Interest limits don't guarantee offers. The APR could still be above the limits. An APR includes required finance charges and could be above the stated interest limit. When looking at disclosures from different lenders, make sure to look at the same amount and same term.
Processing fees and repayment terms
Repayment periods have to be a minimum of 12 months and a maximum of 96 months. Loan contracts must provide for monthly payments, without gaps, and substantially equal payments. The first payment must be due within 45 days after the disbursement of the loan. To determine cost, the monthly payment and the total repayment must be compared. A longer term permitted by this chapter does not necessarily mean the cost is lower.
At closing, the lender may charge an agreed processing fee. The ceiling on this fee is $30 for a loan no higher than $3,000. The ceiling on a fee for a loan over $3,000 is calculated by taking 1% of the amount financed after excluding the processing fee, and capping the result at $150. A lender may charge this fee to a borrower no more than twice in any given 12-month period.
For instance, $20,000's 1% amount financed is $200. Therefore, the cash ceiling of $150 limits it. Determine whether the fee is financed, paid separately, or deducted from the proceeds. In such a case, the fee would impact the cash available to you for your expenses and the disclosed APR.
Early payments and missed installments
Consumer Finance Act loans may be prepaid in full or in part, without penalty. Payments are first credited to permissible fees and charges, then to accrued interest, and finally to principal. This means a prepayment will not reduce the principal balance by the full amount of the prepayment if there are fees or interest that are due.
Per the contract, a fee of up to $18 may be charged if an installment is at least 10 days late. The lender may charge the fee only once for a given scheduled payment. Charging the late fee does not extend the due date.
After a covered loan matures, only interest up to 8% annually may be computed or collected on the unpaid principal. Interest is limited to 8% annually once a money judgment is obtained. Such limits apply only to the covered loan and do not, for example, provide a reason to miss a payment or assume that default would not have other consequences.
If you are having problems making your payments, contact your lender before the payment due date to discuss a postponement or a payment change. There may be costs and permitted fees for changing the terms of the agreement. Make sure you get the changes in writing. Analyze the new costs, dates, and balance compared to the original agreement.
Check authorization and the written offer
The NCCOB's Consumer Finance page has a link to its licensee search. Match the company's legal name to the creditor listed in your offer. If the company claims to lend under a different framework, make sure to verify that authority, and do not take absence from the consumer finance list to mean that they do not lend under that framework.
Several types of documentation may be required by your lender. You may be asked to supply documents showing your identification, your income and employment records, and your banking information. Credit standards and the types of documents requested vary. Ask whether a review will result in a soft or hard credit inquiry and read the information-sharing consent. A request or preliminary estimate does not reflect approval.
The last loan agreement should enable you to determine the amount financed, net proceeds, APR, finance charge, the total of payments, and the due dates for each payment. You should be able to identify any collateral pledged and understand the consequences of default for the collateral. You should be able to simulate the actual monthly payment and determine if you are able to afford the payment. You should also simulate the monthly payment for a lower-income month to make sure that you will be able to pay essential bills and other loans.