Lenders have been required to disclose the cost of their loans, including interest rates and finance charges, expressed together as APR, since the 1960s when Congress passed the Truth in Lending Act.

But they could still exclude the cost of “credit-related” products such as vehicle maintenance contracts and gap insurance – which covers the difference between how much you owe and what your insurance pays if the vehicle is stolen or damaged – from finance charges. This produces a lower APR than the Illinois law calculation.

Illinois’ new law is modeled after the federal Military Loans Act, which Congress passed in 2006. It created an “all in” APR capped at 36% for loans taken out by active-duty military members .

But since the MLA doesn’t cover car purchases, Illinois dealers were surprised to learn that the state’s 36% cap also included car financing.

While it’s unclear how many consumers in Illinois might be protected by the new law, it’s easy to see how borrowers might benefit.

Suppose a consumer with a low credit score wants to buy a new Chevrolet Spark and finds a dealer willing to finance it with a $17,000 loan. Terms include a $2,500 vehicle maintenance contract and six-year loan repayment, with a monthly payment of $500 per month, which equates to an APR of almost 29%.

But if the cost of the vehicle maintenance contract is shifted to finance charges, the APR jumps to over 36%, bringing the total cost of the car and the loan to $36,000.

Major lenders have also been accused of breaching state interest rate caps by charging fees for products such as loan-amount gap insurance instead of finance charges. In Massachusetts, the state attorney general has filed lawsuits in recent years against auto lenders, including Credit Acceptance Corporation, for allegedly funding loans whose APRs exceeded the state cap by charging for ancillary products. in this way, according to documents reviewed by CR.

Credit Acceptance, which did not respond to a request for comment, decided to dismiss the claims in court, although the case remains pending.

A bill in Congress expected to be reintroduced would extend the 36% APR cap set under the Military Loans Act to all Americans, but does not include motor vehicle purchases. John Van Alst, an auto loan expert at the National Consumer Law Center, says it should depend on how such a change is crafted.

“The devil is always in the details,” he says. “So certainly you wouldn’t want such a cap that would prevent states from having a more effective cap.”

If a state wants to have a cap with a 20% or 25% cap, as some currently do, “you wouldn’t want federal law to prevent that,” he says.

Waiting for, if you are shopping for a car, keep in mind the total cost of the loan, not just its listed price and monthly payment. Consider the APR and also consider the term of the loan. The longer the loan, the more interest you will pay over time and the longer you will be upside down with the car worth less than the amount owed. Beware of car purchase costs, too much.

Know how much you can afford, and if possible, consider getting a loan at a bank or other financial institution before going to the dealer, who usually marks up the interest rate to get a profit.