Some states have very high legal ceilings. In New Mexico, for example, a borrower can legally be charged up to 175% APR, and there is no cap if the loan amount is over $ 5,000. Oregon has a 36 percent limit on bank loans, but financing arranged by auto dealerships is exempt from the state’s usury law.
Limits may apply to the interest rate, which covers only a portion of the total cost of taking out a loan, while others cap the APR, the figure best known to consumers.
And seven states – Arizona, Delaware, Idaho, Missouri, New Hampshire, Utah, and Wisconsin, where about 7% of the US population live together – have no interest rate limits. for auto loans.
In fact, because auto loan 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 had they lived in states with more protective limits, according to a CR analysis of publicly available loan data through the Securities and Exchange Commission.
And the actual number is almost certainly higher. CR’s analysis was limited to companies that bundle and sell investor loans in the form of bonds, just a part of the overall auto loan market.
“A car is one of the most expensive assets most consumers will own, right after a home,” says Chuck Bell, financial policy advocate at Consumer Reports. “The fact that states are allowing such high interest rates on auto loans, in the name of helping people with poor credit, is utterly ludicrous. Without strong interest rate caps, borrowers will struggle with high cost loans that prepare them for delinquency, default and repossession. “