A title loan can be a huge help when you need a short-term boost, but if you’re unable to pay it back, you could default. At that point, the title loan company will have the right to repossess your car, and then they call sell it to recoup what you owed on your loan. Losing […]
A title loan can be a huge help when you need a short-term boost, but if you’re unable to pay it back, you could default. At that point, the title loan company will have the right to repossess your car, and then they call sell it to recoup what you owed on your loan. Losing your vehicle is obviously a major inconvenience, and that’s why it’s so important to know how to get out of title loan debt.
From what constitutes a default, how to avoid it and more info about title loans, here’s everything you need to know when you’re having trouble making a payment.
How Does Defaulting on a Title Loan Work?
When you get a title loan, the lender will set up a payment due date at the end of your loan’s term. In most states, lenders offer 30-day terms on title loans, which means your payment due date is 30 days after you initially borrowed the loan.
This isn’t always the case, because a few states have laws requiring longer terms for title loans. You can check the title loan laws in your state to know for sure.
You can make your payment on or before the due date. If you don’t make any payment on your title loan, then you’ve defaulted.
The Consequences of Defaulting on a Title Loan
What happens after a title loan default depends on your state. In some states, as soon as you’ve defaulted, the lender can send someone to repossess your car, and they also don’t need to wait any period of time to sell the car.
Other states have borrower protections built into their repossession laws. There are two possible ways that they can do this. The first is requiring that the lender waits a minimum period before repossessing your car. In some states, they must wait a minimum period of time, provide you notice that you’ve defaulted, and then wait another minimum period before they can come repossess your car.
There is also what’s known as a right to cure. This is a minimum period that the lender must wait after repossessing your car to allow you to catch up on your missed payments. The lender can require you to pay their repossession fees and any storage fees they incurred.
At most, the lender would need to go through several steps to repossess and sell your car:
- Wait the minimum period before sending you notice of the default.
- Wait the minimum period after notification to come repossess your car.
- Wait until the right to cure period ends to sell your car.
This gives you quite a bit of time to catch up on your payments, but it all depends on your state. Know your state’s laws for defaulting on a title loan so that you don’t get caught by surprise.
Getting Out of Title Loan Debt
Understanding what will happen if you default is important, but it’s even more important to know how you can get out of title loan debt and avoid the default process entirely.
The most obvious solution is to pay back your title loan. If your credit score has recently improved, you could apply for a long-term loan with a lower interest rate to help consolidate your debt. Another option is asking friends or family for money.
If neither of these will work for you, most lenders will allow you to extend your title loan. This is also known as rolling over the loan, and it requires you to pay any interest and fees the loan has. You don’t need to pay any of the loan principal, and instead, you take that principal into a new term.
The new term results in more interest and fees, which means this ends up costing you extra. In certain states, you can only extend your title loan a limited number of times, or you need to start paying a portion of the loan principal once you reach a specific number of extensions on the loan.
Extending a title loan isn’t a long-term solution because you’ll end up paying quite a bit in interest and fees. But when you’re short on money and you don’t have any other options, an extension is better than seeing your car get repossessed.
Staying Safe with Title Loans
With the convenience of title loans and the fact that you can get one no matter your credit score, they are an excellent short-term loan. But the key words there are “short term.”
You don’t want to get into a cycle where you keep extending your title loan without making a dent in the loan principal. It’s important to have a plan for how you will handle your title loan debt before you even apply for the loan. Whether that’s getting money from your tax return or working extra hours, just make sure you know how you’re going to pay back the money that you borrow.