The maximum amount of interest, or the highest interest rate (APR) allowed by law in Florida on used car loans is governed by Florida Statutes 520.08 – “Finance charge limitation.”
The statute provides for a sliding-scale of increasing interest rates allowed, depending on the age of the car at the time that it is sold or financed.
For example: Let’s consider a 5 year old used car, that is being financed by a 3-year loan with 36 monthly payments. According to Florida Statutes 520.08(d) , a 5 year old car is a “Class 4″ used motor vehicle, and the maximum finance charge allowed is “$17 per $100 per year.” So, the average used car buyer might think the highest rate allowed under Florida law for a used car loan like this is 17% APR, but the wording of the statute is misleading, and the actual APR allowed is much higher. In fact, the maximum APR allowed in this example is whopping 29.07% APR. (This rate varies slightly depending on the term or length of the loan, but for the most older model used car loans the maximum rate is between approximately 27% and 30%).
- If you think that you have been overcharged by a lender, or Buy Here Pay Here dealer on a used car loan, please contact my office to review your loan documents. The penalties for a lender exceeding the maximum finance charge allowed on a used car loan in Florida, can be substantial.
The reason for the difference between what would appear to be a limit of 17% interest rate on used car loans in Florida, and the 29.07% APR is that the statute uses the “add-on interest” method for calculating the finance charge IN DOLLARS, and not as a PERCENTAGE (i.e. Annual Percentage Rate or APR). The statutory “$17 per $100 per year” actually means that the lender can charge the borrower 17 DOLLARS, per each HUNDRED DOLLARS borrowed, per each YEAR OF THE LOAN’S LIFESPAN. In other words, the maximum finance charge is the DOLLAR AMOUNT OF INTEREST expressed as a PERCENTAGE of the AMOUNT FINANCED (or borrowed), and NOT expressed as an APR!
In our example the maximum amount of interest (i.e. the Finance Charge in dollars) would be: 0.17 x 3 = 0.51 or 51% of the Amount Financed. That means if you borrowed $10,000 for the car, you would pay $5,100 in interest over the life of the loan, and your total monthly payments would be $15,100. Your monthly payment would be $15,100 (total payments) divided by 36 (months) which equals $419.44 per month that you pay to the lender.
Now… in order to turn these figures into an APR, and to comply with the Truth in Lending Act (TILA) we have to do some more complicated math, which requires a spreadsheet or a financial calculator. If you’ve got one handy, the inputs are shown below.Calculator inputsPV = 10,000FV = oPMT = -419.44 (must be negative)N = 36Solve for “I/Y” (and multiply by 12 if your calculator is set to 1 compounding period per year) to find the APR of 29.07% In Excel use the formula=RATE(36,10000,-419.44,0)*12