Thousands of Americans borrow against their cars yearly, and many of these customers turn to vehicle equity loans when other lenders say no. That shows how popular title loans have become for applicants who otherwise would not get approved because of poor credit scores.
But with the revelation that up to 11% of title loan customers have their car repossessed annually, perhaps it’s best to consider other options if you need cash for a financial emergency. Falling behind on your payments will lead to an eventual default, which can happen in just a few weeks after missing payments. A repossession results from someone defaulting on their payments, and you never want to be in a situation where a title loan company takes your vehicle. This article covers the consequences of defaulting and the steps to avoid loan default.
Steps To Avoid A Title Loan Default
Stay in contact with your lender
Timely communication is essential to avoid defaulting on a car title loan. If you are experiencing financial challenges and you foresee the inability to make your loan repayments, contact your account manager as soon as possible. When you let the lender in on your situation, they may find a temporary solution that considers both parties’ interests and conforms to your state’s title lending regulations. Repossession is a last resort move for most auto lenders because a car’s value depreciates with time. Most times, lenders are ready to work with borrowers to evaluate the terms of a car loan.
Ask for a payment extension
An extension gives you more time to get back on track with your payments. If you have been making regular interest payments, an extension will not be an issue where appropriate. By extending the length of the loan, you lower your monthly payments and thus have more money available each month. However, before granting your request, the lender must confirm that the loan complies with the terms and conditions.
Make partial payments to get back to current
Perhaps you cannot afford the monthly payment, but you can at least pay something. In this scenario, you should make a partial payment and let your lender know you’re trying to pay the balance and avoid defaulting. Contact the lender and let them know you can’t afford the full payment but want to get back on track with partial payments.
Sell the car
There may come a time when you should consider selling your vehicle if you can no longer afford the monthly payments. Selling your car can be difficult when you don’t have a clean title, but it is still possible if you’re the primary lienholder. If that’s not the case, contact your lienholder and see if they’re open to selling you the vehicle and paying off the loan balance.
Refinance the loan to avoid defaulting
Another way to avoid default on your loan is by refinancing the current terms and payment amounts. Although it may not solve the main problem, a fixed-rate loan from a bank or credit union can be more economical than rolling over the payments. Besides, getting rid of your title loan with another loan allows you to regain your title. Of course, in this situation, you still need to pay back the new load as you don’t want to ask what happens if you don’t back that loan. Consider refinancing your loan with Highway Title Loans for a more manageable APR and payoff amount!
Get financial help
If you need help with your finances, a nonprofit agency can negotiate with your lenders and place you in a Debt Management Program that fits your budget. Unlike debt settlement, which can hurt your credit, debt management is administered by nonprofit credit counseling companies that work with your lenders. Another option is to seek help from a third party to negotiate on your behalf with the lender.
Common Questions About Defaulting On A Car Title Loan
Can a car title loan lender sue me if I miss payments or default entirely?
Yes, a title loan company can sue you for missing payments, but protections are in place to safeguard customers in this situation. In some states like Texas, you have rights when a lender takes your vehicle, and any legitimate company will need to follow applicable title loan repossession laws. If you fall behind on a title loan in TX, you’re entitled to due process and any amount above what your car sells for at auction. Other states, such as Missouri, have less restrictive laws on what a company can do if they repo your vehicle.
What happens if I default on my title loan
Defaulting on a loan occurs when you fail to make repayment for a certain period agreed upon with your lender. When you fall behind on a loan, it is often forwarded to a debt collection agency that will contact you to recover the unpaid funds. Defaulting on a title loan may also lead to the following consequences:
- Repossession– defaulting on a title loan may force the lender or car dealer to seize or repossess the car to pay for the outstanding debt.
- Reduction of credit score- falling behind on the payments can reduce your credit score and impact your eligibility for future loans.
- Fees- A title pawn company may also impose several fees that cover the attorneys, towing, and storage costs. These fees are regulated and limited in many states, but they will still be high and add to the stress of getting back to current on the payments.
Need Money So You Don’t Default On A Title Loan? Contact Highway Title Loans
Our friendly and helpful loan agents are ready to help you get cash for any financial situation. Contact our staff to learn how to avoid a costly default. Contact Highway Title Loans at 877-433-5454 for more information about title loan offers and refinancing options to avoid future defaults!
Janet Patterson is VP of Marketing Communications for Highway Title Loans and the feature editor of its Lending Blog. Janet has worked in the financial service industry for over a decade, with 7 years of experience in the car title loan industry. She previously managed a customer service team that helped and advised consumers on all their lending related questions and concerns.