It’s true, your car loan lender could owe you up to $11,000 or more. But first, a quick bit of good news: the Wall Street Journal reports that more than $110 billion of bad credit car loans (for people with credit scores below 660) were made from April to September. Plus, 70% of those loans were made to people with scores below 620. So if you have bad credit and need a car loan, the market is very much open and willing to deal.
Now for another item that could be very good news for some people. Recently it was announced that one of the nation’s biggest car loan lenders, Santander Holdings USA Inc., will have to pony up $5.4 million to some of its customers for charging interest rates higher than those allowed by law.
Most, if not all, states have usury laws, which limit the amount of interest someone can be charged on loans. It is this law that Santander broke with some 450 of its subprime customers, most of whom got their loans just this year.
Santander bought loans that included gap insurance (a type of insurance that covers the difference between what is owed on the car and what it is worth, in case of an accident that results in a total loss), which when added to the interest already charged on the loans, made for an effective rate higher than that allowed by state law.
Now for the (kind of) bad news: the only borrowers affected were those in Massachusetts, where the state caps car loan interest rates at 21%. Still, if you’re in Massachusetts and have a Santander car loan, it’s worth looking into. Average payouts to those customers affected are averaging $11,000.