The General Provisions as set forth by the Tennessee legislature have set the maximum auto loan rate in Tennessee as the lesser amount of 24 percent or 4 percent above the prime rate as set by the Federal Reserve. Let’s have a look at who may have to pay the highest interest rate in Tennessee, how that rate can impact your wallet, and what options you may have.
Who Faces the Maximum Rate
The only people who may have to pay the maximum auto loan interest rate in Tennessee are borrowers who have a poor history with auto loans. Bad credit auto loans with the highest interest rates are usually reserved for borrowers who have made multiple late payments on previous car loans or who have had a repossession within the last two years. On the other hand, if you have bad credit in general, but have made all of your auto loan payments on time in the past, you should be able to avoid the top rate.
How The Highest Rate Impacts Your Wallet
Paying the highest auto loan rate will impact your wallet in two ways: your monthly payment and the total interest paid that you will pay. In order to show you how hard the impact will be, let’s model a loan. The loan is for $20,000 over a term of 60 months. If you are required to pay the 24 percent rate, your monthly payment would be $575.36 and you would pay a total of $14,521.56 in interest over the life of the loan. That same loan at today’s prime rate of 2.68 percent would have a monthly payment of just $356.64 and the total interest paid would drop to $1,392.21.
Fortunately, with bad credit auto loans, time is often on your side. So, your first option is to wait before purchasing a car. The reason is that late payments and repossessions begin to have less of a negative affect on your credit score as time passes. The impact from late payments begins to fade six months after you start making your payments on time. Repossessions take a bit longer; impacting your credit score quite hard for two years after all legal filings have been made.
While you wait, you can begin to build a positive payment history by obtaining a credit card. Even if it is a secured card, making all of your payments on time and keeping the balance under thirty percent of the credit limit will boost your credit score after just six payments.
If you can’t wait, then you will want to shop your auto loan around. The best place to look, if you want to avoid the maximum auto loan interest rate in Tennessee, is online. There are many specialty lenders who operate online only, keeping their costs down, so they can offer auto loans to riskier borrowers.