Are You Paying Too Much Interest on Your Used Car? Print E-mail
Written by Kerry S. Doolittle   
Friday, 09 April 2010

 If you purchased a used car or truck at one of the "Buy Here - Pay Here" type used car dealers, there is a chance that the interest rate you are paying exceeds the maximum rate of interest allowed by Georgia law.

 If the amount you financed exceeds $5,000.00, the interest rate will probably be legal because the generally applicable limit is very high. But, if the amount you financed is $5,000.00 or less, the maximum permitted "finance charge" (interest rate) is as follows:

 * 10% per year for a new vehicle with a current year model;
 * 13% per year for a vehicle with a year model not more than two years old;
 * 15% per year for a vehicle with a year model two to four years old;
 * 17% per year for a vehicle with a year model more than four years old.

 If the purchase price is very small, a minimum $25.00 finance charge may be charged.

 Your paperwork from the purchase must state the rate of interest. Is the stated rate higher than the permitted rates?

If your stated rate falls within the permissible limit, do not stop just yet. Interest may be calculated as "simple interest" or by using the "rule of 78's". You need to read the contract carefully to determine which is used. Then an amortization needs to be run to see if the interest rate stated on the contract is the true rate of interest being charged based upon the payment terms.

 The main difference between these two methods of calculating interest is that the rule of 7/8ths causes the buyer to pay more interest on the front end of the loan period and less on the back end. If you pay the loan off early, you will in effect have paid a higher rate of interest. If you pay exactly as scheduled, the total interest should be the same.

 What should you do if you are being charged a higher rate of interest than the law allows?

 By charging too much interest, the seller forfeits the right to collect any interest, late charges, or collection costs. So gather up all your receipts and follow this procedure. (I hope you kept all those receipts.)

First step, add up the total amount of money you have paid the seller, including down payments, late fees, and anything else you paid.

Second step, compare the total of your payments to the total cash "drive out" purchase price (the total you would have paid in a cash purchase), including all title and tag fees, and other such costs. Please note, however, that if you are paying for insurance through the seller, you must deduct those insurance premiums from your payments. The insurance payments cannot be applied to the principal cash purchase price.

Third step, if you have not yet paid off the full cash price, then continue making your regular payments on time until you have paid the full cash price.

Fourth step, when you have paid the full cash price, send a demand letter to the seller by certified mail. In that letter you tell the seller that the interest rate in your contract exceeds Georgia's maximum permitted rate, and as a consequence, he is not entitled to collect any interest, late fees, or other collection costs. State that your total payments have equaled or exceeded the full cash price and, therefore, you demand that the seller forward to you within ten (10) days the original title certificate with all liens marked satisfied (together with a full refund of any excess money over the cash purchase price you may have paid).

The seller may deny your demand, and in turn demand that you pay the balance he claims due. If you refuse to make another payment, the seller will likely repossess the vehicle. You may well need to continue to make your regular payments on time so that the seller cannot use a late payment as an excuse to repossess the vehicle, but mark each payment "paid under protest" and keep a copy.

 The last step is to hire an attorney to file a lawsuit against the seller asking the court to compel the seller to turn over the original title certificate with all liens marked satisfied, and to give you a judgment against the seller for all monies you paid in excess of the cash purchase price. Because the seller continued to demand the illegal interest after being clearly informed of its illegality (and can no longer claim an innocent mistake), you will also be able to ask the court to award attorney's fees and a civil penalty for the seller's willful violation of Georgia's Motor Vehicle Installment Sales Act.

A willful and intentional violation of the Motor Vehicle Sales Finance Act is also considered a misdemeanor carrying a fine up to $500.00 for the first offense. Subsequent offenses can result in larger fines and/or imprisonment.

I hope you find this information helpful.

Kerry S. Doolittle

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