Direct Reduction Loan Law and Legal Definition

Direct Reduction Loan is a loan that requires payment of both interest and principal with each installment such that the total payment will be adequate for clearing the loan over its term.

Following is an example of Alabama state statute [Code of Ala. § 5-16-2] which defines the term Direct reduction loan.

Direct reduction loan means “A loan repayable in consecutive monthly installments, equal or unequal, beginning not later than 60 days after the date of the advance of the loan, sufficient to retire the debt, interest and principal within 20 years; provided, however, that the initial loan contract shall not provide for any subsequent monthly installment on an amount larger than any previous monthly installment; and, provided further, that in the case of construction loans the first payment shall not be later than six months after the date of the first advance. Any such loan is an amortized loan”.