CreditCards.com Visa credit cardsMasterCard credit cardsAmerican Express credit cardsDiscover credit cards

Monday, April 21st 2014

ADVERTISEMENT

Servicemembers Act helps, but soldier, straighten up your debt

Law limits loan rates to 6%, but controlling debt is 1st priority

By Jane McNamara

Let's Talk Credit
Let's Talk Credit columnist Jane E. McNamara
Jane E. McNamara is president and chief executive officer of GreenPath Debt Solutions, a nationwide, not-for-profit, providing financial literacy through consumer education and counseling for more than 50 years. For financial literacy tips and assistance visit GreenPath on Facebook or YouTube.
Ask a question.
'Let's Talk Credit' archive

Question for the CreditCards.com expert

Dear Let's Talk Credit,
Is there a limit to how much interest military members are charged for an auto loan? -- Tatiana

Answer for the CreditCards.com expert

Dear Tatiana,
I believe you are asking about the Servicemembers Civil Relief Act. This law provides that interest rates for credit obligations incurred before active military service is limited to 6 percent, including credit card debt. The monthly payment amount must be lowered by the amount of interest savings, and all interest above 6 percent must be permanently forgiven. The Act protects all active duty service members, including those in the National Guard and Reserve units while they are called to active duty.

If you are currently serving in the military on active duty and your auto loan was obtained before you started active duty, the provisions in the act are relevant to your loan. You must send written notification with copies of your military orders for the interest rate limitation to be applied to your credit obligations. One thing you should keep in mind is that a creditor can request relief from the court for the interest rate limitation. What that means to you is the court may decide that your ability to pay is not affected by your active duty service and deny your request for the lowered interest rate provided for in the act.

Should you have trouble making your car loan payments after beginning active duty military service, the interest rate limitation provided by the Servicemembers Civil Relief Act may not help as much as you may like. For example, a four-year auto loan of $15,000 at 15 percent interest would require a monthly payment of $417. Reducing the interest rate to 6 percent interest would decrease the monthly payment to $352, a difference of only $65.

I recommend that you review your car loan and determine if the savings from the lower interest rate would be enough to allow you to meet your monthly loan obligation. If it does not, you might consider selling the car or trading it in for a vehicle that you can afford. Do not stop making payments. Car loans are considered in default after just one missed payment and the lender has the right to repossess the vehicle once the loan is in default. If the lender repossesses your vehicle, it likely will sell the car at auction. Such sales often yield far less than what is owed on the loan and you would be responsible for the difference. In addition, other fees will likely be added to your balance, increasing the amount you will owe, even after the car is gone.

Let's keep talking!

See related: Military families under fire at home from predatory lenders, That 6% rate for active-duty military not always easy to claim

Meet CreditCards.com's reader Q&A experts
Vexed by a personal finance problem? CreditCards.com's Q&A experts answer questions from readers every weekday. Ask a question, or click on any expert to see their previous answers.
Gary Foreman, New Frugal You columnist Gary Foreman,
"New Frugal You"
Sally Herigstad, To Her Credit columnist Sally Herigstad,
"To Her Credit"
Tony Mecia, Cashing In columnist Tony Mecia,
"Cashing In"
Jane McNamara, Let's Talk Credit columnist Jane McNamara,
"Let's Talk Credit"
Elaine Pofeldt, Your Business Credit columnist Elaine Pofeldt,
"Your Business Credit"
Erica Sandberg, Opening Credits columnist Erica Sandberg,
"Opening Credits"

Published: July 4, 2013


If you are commenting using a Facebook account, your profile information may be displayed with your comment depending on your privacy settings. By leaving the 'Post to Facebook' box selected, your comment will be published to your Facebook profile in addition to the space below.

Three most recent Lets Talk Credit stories:

Share This Story




Follow Us!

Google+

Credit Card Rate Report

Updated: 04-21-2014

National Average 15.00%
Low Interest 10.37%
Balance Transfer 12.64%
Business 12.80%
Student 13.27%
Cash Back 14.84%
Reward 14.96%
Airline 15.30%
Bad Credit 22.73%
Instant Approval 28.00%

ADVERTISEMENT
ADVERTISEMENT
USA   |   UK   |   Australia   |   Canada
ADVERTISEMENT
ADVERTISEMENT