If you’re looking to get out of a car title loan, there are legitimate and legal ways to do it. Even if paying off the loan balance in full isn’t an option right now, there are practical strategies that can help reduce what you owe and speed up your way out of debt.
Choosing the right approach for your financial situation can save you hundreds or even thousands of dollars and help you break free from a potential cycle of debt.
This article serves as a personal finance resource to help you make informed decisions about managing debt and loans.
10 Ways to Pay Off or Legally Get Out of Title Loan Debt
If you find that you are unable to make your title loan payments, see how you can get out of an auto title loan without losing your car here:
This section will cover debt relief options for those struggling with title loan debt, including guidance from credit counselors and exploring debt management plans.
1. Take Out a Personal Loan
You can try personal loans if you don’t want another secured loan. Compared to a car loan, personal loans are usually unsecured, may have different eligibility requirements, and often come with higher interest rates and shorter repayment terms. You can use these funds to pay off the title loan. Please remember that unsecured personal loan may have higher interest rates than a title loan.
- Pro: Potentially better loan terms
- Con: Not everyone may qualify
2. Get a Credit Card With a Cash Advance
A credit card cash advance is another way to get money fast. Just be careful. Cash advances often have high-interest rates and fees, so make sure you can afford the costs.
- Pro: Receive funds quickly
- Con: High interest rates
3. Seek the Help of Family and Friends
If you’re in financial trouble, don’t be embarrassed to talk to trusted family members or friends. If they know you might lose your car, they may help you financially with better terms than personal loans.
- Pro: Favorable and flexible repayment terms
- Con: No guarantee that friends or family are willing or able to help
4. Sell Personal Property
If you own property that you can sell and make quick cash, you can pay off the title loan or get back on track with your payments. Choose personal property that’s liquid enough to sell immediately.
- Pro: Receive funds quickly
- Con: Dependant on owning liquid capital
5. Refinance Your Home and Use Home Equity
If you own a home with equity, you may be able to borrow from it. Home equity loans are typically offered by a traditional lender such as a bank or credit union. Home equity loans are second mortgage loans on a property. They may have lower interest rates than other financing options.
- Pro: Lower interest rates
- Con: May not have enough equity to borrow from
6. Life Insurance or Other Policies That Can Be Cashed Out
If you have any assets with cash value, such as life insurance, stocks, or other assets you can liquidate, you can use the cash to pay off your car title loan.
- Pro: Access to the cash you need
- Con: Potential early withdrawal fees
7. Sell the Car Instead of Losing It and Defaulting on Your Loan
If you know you risk losing your car, you could sell it before it gets repossessed. Just remember that you must first pay off your title loan, which means settling the remaining loan balance, the total amount you owe, before you can transfer the title to a new owner. This can help you avoid damaging your credit score.
You can accomplish this in a few different ways. If you trade in your vehicle to a dealership, the dealer can factor in the remaining cost of your loan and pay it off for you. Then, you can purchase a lower value car.
If you sell your car privately, you will need to find a buyer that is comfortable waiting for the title. Once the buyer pays you, you can pay off your existing title loan, ensuring the loan balance (the amount you owe) is cleared, and then transfer the title over to the new owner. With the remaining money, you can purchase a lower value car.
- Pro: May satisfy the debt
- Con: Will be without a car
8. Renegotiations of Your Title Loan Terms
Talk to your car title loan lender if you can’t afford the full payment or need an adjusted payment date. There may be options to renegotiate the terms to make them more affordable. You can ask your lender to set up a new payment plan, negotiate a lower payment amount, or adjust your monthly payment to make the loan more manageable.
This doesn’t mean you won’t pay the full amount owed. However, they may extend the term or make other adjustments so you can satisfy your obligations.
- Pro: Adjusted and more manageable loan terms
- Con: Term extension
9. Refinancing Your Title Loan
If you have equity in your vehicle, your lender may be able to offer you the option to refinance. Refinancing your title loan may allow you to obtain a new loan with lower monthly payments, making it easier to manage your monthly payments. Discuss this option with your title loan lender if you are behind on payments.
- Pro: Give you additional time and extra cash for repayment
- Con: Your loan term or amount will increase
10. Default or File for Bankruptcy
If you have no other option, filing for bankruptcy can help you with your title loan debt. Bankruptcy may reduce your principal balance or loan balance, and if you default on your loan, debt collectors may pursue repayment. Use this option as your last resort because it hurts your credit score the most. It could take a few years before you can get approved for any other credit.
- Pro: Will help reducing your debt
- Cons: Extensive damage to your credit
What it Means to Default on a Title Loan
Car title loans use your car as collateral, so if you default and can’t pay your loan according to the title loan agreement, the lender has the right to repossess and sell your vehicle. Vehicle repossession is the lender’s legal right if you default, and missed payments can quickly lead to repossession.
In many states, the lender can take your car as soon as you default on your loan. Your contract should say what could put you in default, but not making a payment on time is a typical example.
To avoid repossession, communicate with your lender immediately if you anticipate missed payments or have trouble making a payment.
What Happens if You Refuse to Pay Back a Loan?
If you don’t pay what you owe, it will eventually be sent to collections. Most collection agencies report the accounts to the credit bureaus and may even file a lawsuit against you.
Alternatives to Car Title Loans
If you’re looking for ways to get out of your current title loan and want to avoid taking out another one in the future, consider these alternatives:
- Personal Loans from Banks or Credit Unions: These typically have lower interest rates and more manageable repayment plans than title loans.
- Payday Alternative Loans (PALs): Available through federal credit unions, PALs offer small, short-term loans with capped interest rates and fees.
- Borrowing from Family or Friends: Getting financial help from trusted family members or friends can provide more flexible and affordable repayment options.
- Selling Personal Property: Liquidating assets or personal property can help raise funds to pay off your loan without taking on new debt.
Exploring these options can help you avoid the high costs and risks associated with car title loans in the future.
FAQ’s
Will a Title Loan Show Up on My Credit Report?
Whether a title loan appears on your credit report depends on the lender. Some title loan lenders report your loan activity to the credit bureaus, which means that making your payments on time can help build your credit history. However, if you miss payments or default on the loan, these negative marks can also be reported and harm your credit score.
Not all title loan companies report to credit bureaus, so if you want your loan payments to impact your credit report, it’s important to ask your lender beforehand. Keep in mind that if your loan goes into collections or results in vehicle repossession, these events are typically reported and can significantly affect your credit standing.
What Happens if a Title Loan Company Goes Out of Business?
Even if a title loan company goes out of business, you must still make your payments. The company may continue servicing payments until the loan is paid in full. If not, another servicer may buy the debt, or the FDIC will take over until you pay the loan in full.
Will a Repossession Hurt My Chances of Getting a New Car?
A repossession stays on your credit report for seven years. It hurts your credit the most in the first couple of years, and it could make it hard to buy a new car if you need financing.
After a repossession, you may need to apply for an auto loan to finance a new vehicle.
Is There Title Loan Relief Assistance?
If you can’t pay back your title loan, your best option is to find another form of financing. Financial help may be available through a credit counselor or nonprofit organizations that specialize in debt relief options. Some charities that help with title loans because they are against high-interest-rate loans exist and may be able to help. Catholic Charities of Northern Kansas, Upsolve, and Capital Good Fund are a few options.
The Bottom Line
It’s not a good feeling to be unable to afford your car title loan, but you have options. If your financial situation changes, talk to your lender to determine your next steps.
Vehicle title loans are a form of short-term loan that can lead to predatory lending practices and more interest if not managed carefully. Predatory lenders often target vulnerable borrowers with payday loans and title pawn loans, which can trap you in a cycle of debt. Car title lenders may require proof of auto insurance and your vehicle title as collateral for the loan.
Federal credit unions offer payday alternative loans as a safer option, and the Military Lending Act provides important protections for servicemembers against predatory lending practices. If a loan violates state or federal laws, borrowers have rights and can seek help from regulators or legal aid.
Understanding Your Rights and Alternatives
When borrowing money, it’s important to understand the loan proceeds, reasonable expenses, and the total amount you may owe, especially if you have an existing loan. If a lender repossesses and sells your motor vehicle, they cannot keep all the money from the sale if it exceeds your loan balance.
Bank or credit union loans, such as auto loans or personal loans, may be better alternatives to high-cost vehicle title loans. Maintaining a bank account and good credit union membership can help you access better financial products in the future.
It is imperative to remember that auto title loans should be considered a short-term solution for time-sensitive financial needs.
You may experience difficulty repaying car title loans due to high APRs, which can result in default and repossession of your vehicle. Only use them for emergency funds as a last resort. If you’re interested in exploring your loan options, you can fill out our loan request form to see how much you may qualify for with other types of loans, no obligation.