The complicated patchwork of laws can even harm consumers who live in states with strong lending caps. Without strong interest rate caps, borrowers will be saddled with high-cost loans that set them up for delinquency, default, and repossession.” “The fact that states permit such egregiously high interest rates for auto loans, in the name of helping people with low credit scores, is completely ridiculous. “A car is one of the most expensive assets most consumers will ever own, second only to a house,” says Chuck Bell, a financial policy advocate at Consumer Reports. CR’s analysis was limited to companies that bundle and sell loans to investors as bonds, just a piece of the entire auto loan market. In fact, because auto lending laws vary so much, at least 875,000 borrowers across the country over the past decade have received APRs on auto loans that would appear to be usurious if they’d lived in states with more protective limits, according to a CR analysis of lending data publicly available through the Securities and Exchange Commission.Īnd the real number is almost certainly higher. population live-have no auto loan interest rate limits on the books at all. Limits may apply to the interest rate, which covers only part of the total cost of taking out a loan, while others cap the APR, the number more familiar to consumers.Īnd seven states-Arizona, Delaware, Idaho, Missouri, New Hampshire, Utah, and Wisconsin, where together about 7 percent of the U.S. Oregon has a 36 percent limit for loans from banks, but financing arranged through car dealerships is exempt from the state’s usury law. In New Mexico, for instance, a borrower can legally be charged up to 175 percent APR, and there is no cap if the loan amount is greater than $5,000. Hawaii offers a similar exemption to its cap, while other states have rate caps based on sliding scales, allowing buyers of older used vehicles to be charged higher interest. Four of those have said they may charge interest rates of 300 percent or more. As of mid-July 2021, dozens of dealers had told state regulators that they may assess 100 percent APRs or more, records show. In South Carolina, which also has an 18 percent limit, the law permits lenders and dealers to, in effect, charge whatever they want as long as they notify the state in advance just how high they may go. But if an auto dealer arranges financing, as opposed to a bank or credit union, rates are determined using a complicated formula based in part on the vehicle’s age and whether it is new or used, effectively allowing APRs to rise well above 18 percent. What we found: Lending rules were all over the map.įlorida, for example, has an 18 percent interest rate cap on consumer loans greater than $4,000 and up to $25,000. To understand the lending landscape, CR spoke with regulators in all 50 states and the District of Columbia to assess what the relevant interest rate limits on auto loans were in each jurisdiction. The result: It is almost impossible for borrowers to easily know whether they are being overcharged. The problem may be especially acute for people with poor credit.Īnd even when violations appear to occur, as when Frampton was steered into a 75 percent APR loan, regulatory enforcement is limited, according to interviews with regulators and a review of public records and court documents. As a result, in some places consumers can be charged interest rates on car loans more commonly associated with predatory payday lending. Laws governing auto loan financing caps vary dramatically from state to state-there is no federal interest rate limit-and individual state usury laws, which make it illegal to charge excessive interest, are complicated and can appear to contradict other statutes on the books, Consumer Reports found. But just how big can depend on where they live and get their loan. face rising prices for vehicles, they’re also shouldering an enormous debt burden in order to purchase them. “I’m just trying to go in there and get the car.” (Auto Credit Center didn’t respond to a request for comment.)Īs consumers across the U.S. “I don’t know APRs, I don’t know nothing about that,” he says.
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