According to the Office of the Attorney General for the State of Texas the maximum rate for a car loan in Texas is 18 percent. That rate is usually reserved for a borrower who has bad credit. Let’s have a look at what an interest rate of 18 percent does to a loan balance.
Who Faces the Highest Rates?
Usually, the borrowers who are facing the highest interest rates are those who have bad credit. Not just bad credit in general, but have been irresponsible with previous car loans. The major providers of credit scores have targeted scores…a specific score for a mortgage, another for credit cards, and one for auto loans. If you have a history of late payments or a repossession, your auto specific credit score could be as much as 120 points lower than your general credit score.
Total Interest Paid
The average cost of a new car in the United States is $30,000. If you have to pay the maximum rate of 18 percent on that amount for just six years you will pay a total of $19,264.83 in interest. Even if you choose to buy an less expensive model, say a Kia Rio, that retails for around $15,000 you will pay $9,632.41 in total interest over the life of a six year loan.
What Can Be Done
You have two options if you are facing an interest rate that seems too high. First, you can improve your credit. You cannot go back and undo past mistakes, but you can let them fade. Late payments and repossession may stay on your credit report for seven years, but their impact on your credit score lessens over time. While you are waiting for these past infractions to fade, why not get a credit card? Even if you have to get a secured card, your score will improve if you make your payments on time and keep your balance under thirty percent of the credit limit.
Your second option is to shop around for a better loan offer. Granted, if you have bad credit, you will have to skip large banks and some credit unions. That does not mean you have to accept the first offer you get. There are many specialty lenders who are willing to offer you a loan. Many of them operate online only, making your search even easier. Go here to apply online–today!