Personal Loans While Serving and After You Separate

Who the Military Lending Act covers

The Military Lending Act is a federal statute, 10 U.S.C. 987, carried out by a Defense Department rule at 32 CFR part 232. It protects a "covered borrower": a member of the armed forces on active duty under orders that do not specify 30 days or fewer, a member on Active Guard and Reserve duty, and that member's spouse and certain other dependents. The Consumer Financial Protection Bureau lists the Army, Marine Corps, Navy, Air Force, Space Force and Coast Guard, plus Guard members mobilized under federal orders for more than 30 consecutive days.

Status is measured on the day you become obligated on the loan. A lender usually checks it in the Defense Department's MLA database, which needs your last name, date of birth and Social Security number, or relies on a status flag in a credit report. The rule forbids a lender from using that database to look up whether you were covered at some earlier date.

What the 36% MAPR counts, and what else the law bans

The 36% ceiling is not measured on the interest rate alone. The MAPR adds finance charges, credit insurance premiums, debt cancellation or suspension fees, charges for any credit-related add-on product sold alongside the loan, and certain application fees. A loan with a modest rate can cross the ceiling once these are added.

Beyond the price, the statute and rule make it unlawful to extend credit to a covered borrower on these terms:

• Mandatory arbitration. An agreement to arbitrate a dispute over the loan cannot be enforced against you. See arbitration clauses for how they read in other contracts.
• Prepayment penalties. You may pay the loan off early, in whole or in part, without a fee.
• A required allotment. The lender cannot make a military pay allotment a condition of the loan. Military relief societies are exempt from this one.
• Waiving your rights. The contract cannot make you give up legal remedies, including your SCRA rights.
• Vehicle title as security, except at banks, savings associations and credit unions.

A contract that breaks these rules is void from the start, and the statute lets you sue for actual damages of at least $500 per violation. The MLA does not cover a loan secured by your home or a loan to buy a car or other goods that the purchase itself secures. An ordinary unsecured personal loan is covered.

SCRA: a 6% cap on debt from before you served

The Servicemembers Civil Relief Act, 50 U.S.C. 3937, reaches the other direction in time. A loan you or you and your spouse took out before entering military service may not bear interest above 6% a year during your service. For non-mortgage debt such as a personal loan, the cap lasts for the period of service. "Interest" here includes service charges and fees.

1. 1 Send a written request to the lender with a copy of your orders, or a letter from your commanding officer.
2. 2 Send it in time. The deadline is 180 days after you are released from service. Keep a copy of what you sent and the date.
3. 3 Check the next statements. Interest above 6% is forgiven, not deferred, and each payment must drop by the forgiven amount.

A worked example: on a $5,000 balance at 18%, one month of interest is $75. At 6% it is $25, so that month's payment falls by $50. The figures are illustrations, not a lender's calculation.

What lenders ask for when you apply

An active-duty applicant usually proves income with a recent Leave and Earnings Statement (LES), which shows base pay, allowances and allotments already taken out. A lender may also look at the length of your current orders, because a loan that outlasts your enlistment depends on income after separation.

A veteran can download a VA benefit summary letter or a proof of VA income letter from VA.gov. A retiree can show a retired pay statement. For the general list of identity and income papers, see documents you need.

Interest-free help to try first

Each service has a relief society that lends for emergencies without charging interest. They are charities, not lenders, and they set their own eligibility and limits, so ask your unit or the society directly.

Before a loan from a finance company, also ask a credit union. Federal credit unions can offer small payday alternative loans of up to $2,000 with an application fee capped at $20. Then compare any offer line by line using the total cost of a loan.

Questions people ask