According to the Georgia Department of Banking and Finance, the maximum interest rate on loans that have a principal between $3,000 and $250,000 is 16 percent. Additionally, the state requires that the exact interest charged be clearly spelled out in writing in order to be enforced. State maximum interest rates are usually placed on loans being made to consumers with bad credit. Let’s look at how a 16 percent interest rate can affect a loan, what options you may have, and how to avoid such a high rate in the future.
Who Faces the Highest Rate in Georgia?
There are two types of buyer who may face the highest interest rate in Georgia: those with bad credit and those with an unusually high debt-to-income ratio. The major credit reporting agencies have targeted scores. For example, every consumer in the United States has a score for a mortgage, car loans, credit cards, insurance, etc. Everyone has up to 52 different credit scores that are based on the lending situation. With that in mind…the highest auto loan interest rate does not apply to every buyer with bad credit, mainly to those who have struggled with car loans in the past. If you have bad credit in every aspect of your life, but have paid previous car loans on time, your score may be high enough for you to avoid the 16 percent rate. The reverse is true as well. Great credit everywhere, but have a repossession; look out!
Total Interest Paid
Total interest paid over the life of a car loan is where the interest rate is going to impact individual buyers the most. According to various sources, the average cost of a used car in the United States hit $18,800 in August of 2015. New car prices top $30,000. Let’s model both loans so you can see how hard bad credit can hit your wallet.
Most new cars qualify for a loan term of 72 months. So, a loan of $30,000 at 16 percent will cost you $16,854.38 in total interest over the life of the loan. A loan for a used car is normally limited to 60 months maximum, so $18,800 at 16 percent will cost you $8,630.77 over the life of a 60 month loan.
What Can Be Done
You have two options when facing the maximum interest rate for an auto loan in Georgia. The first is to wait to buy, the second is to shop your loan online.
The impact of negative marks on your credit report fades over time. Late payments and repossessions will stay on your credit report for seven years, but begin to fade. The effects of a late payment will begin to fade after six months as long as you do not have another late payment. A repossession can begin to fade after two years. While you wait for the effects of these items to fade, try getting a credit card. Even if it is a secured card, new credit used responsibly will help past indiscretions fade more quickly.
Shopping your loan around when you have bad credit may sound counter-intuitive, but it can be the best way to get the loan you need. Your best option may be to look online for specialty lenders who concentrate on offering loans to buyers will less than stellar credit histories. There are even broker sites that allow you to apply to several specialty lenders at once, making your search faster and easier.