The Alabama Legislature has set two interest rates for auto loans. The maximum auto loan interest rate in Alabama for loans of $2,000 or less is eight percent. Auto loans that exceed $2,000 can be subject to a rate of up to ten percent. Additionally, nationally chartered banks are not covered by Alabama law. These banks all have N.A. at the end of their corporate name. Let’s have a quick look at who must pay the maximum auto loan rate, how it affects your monthly payment, and a few options you have available.
Who Faces the Maximum Rate?
The maximum interest rate for an auto loan in any state is usually reserved for buyers with poor credit and a history of late payments on auto loans or a repossession on their credit report. Often, you will have difficulty getting a car loan approved with a recent history of a repossession. On the other hand, if you have been able to pay past car loans on time, but messed up other aspects of your credit, you may not have to pay the maximum rate.
Monthly Payment and Total Interest
The two areas where a bad credit auto loan will hit you hardest are in your monthly payment and the total interest you will pay over the life of the loan. Let’s assume a loan of $20,000, a term of 60 months, and an interest rate of 10 percent. The monthly payment on that loan will be $424.94 and the total interest that you will pay is $5,496.45. Compare that to a person asked to pay the current prime rate of 1.99 percent: their payment would be $350.67 and they would only pay $1,028.06 in total interest.
You have several options if you are asked to pay the maximum auto loan interest rate in Alabama. The first is to simply wait to buy. The negative impact from late payments and repossessions will fade over time. Late payments will begin to fade six months after the last one is posted to your report. Repossessions will begin to fade two years after any court proceedings have been filed.
While you are waiting, you can obtain a credit card. Even if it is a secured card, making the monthly payments on time and keeping the balance under thirty percent of the credit limit will boost your credit score after you have made six payments.
If you can not wait, you can shop your car loan online. There are many bad credit auto lenders who operate online only. The low overhead from not having a bunch of branch offices allows these lenders to offer riskier loans to a large number of borrowers. Often, this means that borrowers who are denied elsewhere will find the loan they need online.