One of the largest subprime auto lenders in the country is still charging borrowers rates that would make a payday lender blush, and its latest numbers show exactly how that math works out for the people signing on the dotted line.
Credit Acceptance Corporation, which specializes in loans to buyers with damaged or thin credit, reported an average annual percentage rate of roughly 20% on its loan portfolio.
That's the standard cost of borrowing for a used car through a dealer that works with the company.
The business model is simple and, by Wall Street's measure, effective.
The company doesn't run its own dealerships.
Instead, it partners with independent used car lots, funds the loans, and splits the profit with the dealer.
Borrowers get a car they otherwise couldn't finance.
In exchange, they pay interest that can run two to three times what a prime borrower would pay on a new vehicle.
The strain is showing up in the loan data.
In recent quarterly filings, Credit Acceptance reported that a growing share of its borrowers were falling behind, with delinquency rates climbing above where they sat before the pandemic.
When payments stop, the repossession process starts, and the borrower is left with a wrecked credit score and often a remaining balance on a car they no longer have.
For anyone shopping for a used car right now, the practical lesson is to know what you're actually being offered.
A 20% APR on a $15,000 loan over five years means paying roughly $9,000 in interest alone — nearly 60% of the car's price.
On a 60-month loan, the monthly payment looks manageable at about $397, but the total cost tells a different story.
There are a few moves that can soften the blow.
Get pre-approved at a credit union before you set foot on a lot; many offer subprime auto loans at rates several points below what dealer-arranged financing charges.
Save for a larger down payment, even a few thousand dollars, because it shrinks the amount that interest compounds against.
And read the contract for add-ons like gap insurance and extended warranties, which dealers often bundle into subprime deals and which can add thousands to the financed total.
If your credit is the problem, spend six months paying down a credit card balance and disputing any errors on your report before you buy.
A jump from a 580 to a 650 score can cut your rate by several percentage points, which over the life of a car loan can mean thousands of dollars staying in your pocket instead of the lender's.
It's also worth remembering that a car loan isn't the only path.
Saving cash for a $5,000 to $7,000 vehicle and avoiding financing altogether is unglamorous, but it's the only option that comes with a 0% interest rate and no risk of repossession.
The subprime auto market exists because millions of Americans need a car to get to work and have no other way to pay for one.
But a 20% loan that eats a fifth of your take-home pay is a solution that can quietly become a second problem.
Final Thoughts
Before signing, run the total cost, not just the monthly payment — and walk away if the numbers don't leave room to breathe.