stub
HomeBudgetingWhat Happens if You Don't' Pay a Title Loan Back?

What Happens if You Don’t’ Pay a Title Loan Back?

Using a car title to secure funds can help you pay for unexpected expenses, like a medical emergency. However, this deal comes with risk. If you default on a title loan, your lender can repossess your car. Let’s break down these risks and potential workarounds that would allow you to keep your wheels if you don’t repay your title loan.

What is a Car Title Loan?

A car title loan is a short-term secured loan that uses your vehicle as collateral. Car title loans are typically for a small amount, about 25%-50% of your car’s value. The lender gives you a lump sum of money in return for your car title and a set of keys. You’re required to have a lien-free title by most lenders. That means the car is paid off. 

What Happens if You Don’t Pay a Title Loan Back

if you don’t repay a title loan, that means you’re defaulting on the loan. Your lender can legally repossess your car to pay off the title loan. Each state has different specifics about the repossession process. For example, some states require that the lender notify you about the default within a few weeks. Other states allow lenders to repossess your car at any point. Not sure which type of loan you have? Carefully read your loan contract.

Hiding your car to prevent your lender from repossessing is illegal. Your lender can claim a breach of contract and bring in law enforcement if they believe you’ve intentionally hidden the car. 

Fees

You can be charged fees for missed payments or repossession, depending on state regulations. In some states, the amount you can be charged in fees is capped, while in other states there’s no limit. If a lender repossesses your car, they may charge fees to cover storage and attorney fees. 

Your Credit Score

Title loan lenders don’t use your credit score when you apply for a loan. If you default on the title loan, the lender will repossess your vehicle and sell it at auction. Lenders are required to comply with the Fair Debt Collection Practices Act. Since the lender doesn’t sell your debt to a collection agency, they won’t report the delinquency to the credit bureaus. 

What To Do if You Can’t Repay a Car Title Loan

If you can’t pay a title loan back, you still have options for a favorable outcome. Below are some tactics to consider.

Repay the Title Loan

It might not be possible to repay your car title loan if you’re in a financial bind. Contact the lender first to find out what the payoff amount is. Then look for ways you can get money to repay the loan. Some ideas include:

  • Take a second job or side gig to earn extra money.
  • Sell items you don’t need.
  • Take money out of a savings.

It’s not an ideal situation to take money out of your savings to repay a title loan. But it’s necessary to avoid the negative implications of losing your car. Creating and following a budget in the future can help prevent these scenarios from happening. 

Renegotiate the Loan Terms

Your lender might be willing to work with you if you talk to them about your financial situation. Negotiate more affordable loan terms that will allow you to repay the loan. Some of the potential negotiation tactics include asking for a lower interest rate, a longer loan term, a lower monthly payment, or some combination of these. Before accepting a new term, make sure that you can afford the new loan terms and ask for the details in writing. 

Keep in mind that if you extend your loan term, you may pay more in fees or interest. While your new title loan term is affordable, it may cost more over the life of the loan. 

Ask for a Debt Settlement

Calculate how much you can afford to pay as a lump sum if you can’t pay back the whole payoff amount. Your lender might accept a lower payoff amount, which is called a debt settlement. They will likely be more willing to work with you if you’ve missed payments. 

If your lender agrees to a debt settlement, ask for the details in writing and ensure that both parties sign the document. It’s possible that a debt settlement could affect your credit score. This is because you’re paying less than the originally agreed-upon amount. Your lender may report the account as “settled” to the credit bureaus. This derogatory mark can stay on your credit report for as long as seven years, affecting your credit score. The upside is that you will no longer be in debt.  

Refinance or use a Credit Card

Finally, you could apply for a personal loan or use a credit card to pay back your car title loan. To qualify for a personal loan or credit card, you need to have good credit. Personal loans and credit cards are both unsecured loans so you don’t run into the risk of losing your car. However, you should make sure that you can afford the monthly payments because they’re reported to the credit bureaus. 

Bottom Line

You should avoid running into the situation of being unable to pay back your title loan. A realistic budget is a great tool for managing your finances. If you can’t pay a title loan back, contact the customer service team and find out what options they may have to avoid repossession of your vehicle. 

 

RELATED ARTICLES

Related Content

Most Popular