Title loans are a quick way to get cash, but you might need help paying it back if you run into financial issues. In a perfect world you would pay your loan back on time. But, if you can’t, exploring your options early is important to ensure you keep your vehicle. Fortunately, there are ways to get out of an auto title loan without losing your car.
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. 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.
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
The Word ‘Repossession’ Can Be Scary
When you’re unable to repay your loan, the word ‘repossession’ can be scary. You should know that many lenders don’t immediately begin repossession proceedings if you miss a single payment. You may be able to work with your lender to adjust your repayment terms or continue to make payments with added fees and penalties.
Why Do Lenders Do This?
Both borrowers and lenders benefit from the loan being repaid according to the original terms. In other words, you share a mutual interest in satisfying the loan. Before defaulting on your title loan and losing your car, discuss a repayment plan directly with your lender. You may be able to work out a solution and avoid repossession.
Here’s what you should know if you don’t pay a title loan back:
Title Loan Repossession
With title loans, you sign an agreement stating that you understand the lender can take the car if you miss your payments.
Each state has different laws regarding an owner’s redemption rights after defaulting on a car title loan. Your state’s laws also control how and when a lender can repossess your vehicle and if you are liable for any outstanding balance after it is sold.
Hit on Your Credit
If a title loan lender repossesses your car, it may hurt your credit significantly.
While you won’t go to jail if you don’t pay a title loan back, it can cause serious credit score issues and leave you without a car. Losing your car plus having a lower credit score may make it more difficult to buy another car with financing.
If you get behind on your title loan, you may be subject to fees. These can be for missing payments, repossession, and potential legal costs. These fees vary by state.
Be careful. Some states do not have a fee cap, so some car title lenders can charge as much as they see fit. Having a clear understanding of the fees you will incur if you fail to make payments or have your car repossessed is essential. Talk directly to your title loan lender to have the most up-to-date information.
What to Do if Your Car Is Repossessed
Steps you can take if you aren’t able to meet the loan agreement and your car is repossessed include:
- Talk about your options with your lender. See if you can rework the loan details so you can afford the payment.
- You may be able to get the money to repay the total amount owed plus repossession costs. Ask the lender if you can redeem your car before it goes to auction.
- Ask where the car is located to retrieve your personal belongings. Title lenders have the right to the vehicle but not the items inside.
- Make sure you don’t owe any more money. A deficiency balance can sit on your credit report and go to collections. This could hurt your credit further.
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:
1. Take Out a Personal Loan
You can try personal loans if you don’t want another secured loan. 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 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. 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, 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.
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. 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. 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
Find a Trusted Co-signer
If you apply for a car title loan, consider asking a friend or family member to co-sign. If you have bad credit or have a lot of debt, it could be harder to qualify for a loan. With a co-signer, you have a better chance of securing better terms.
Have a Side Hustle or Look For Ways to Make Instant Money
Consider starting a side hustle or finding other ways to make instant money. There are many opportunities that pay instantly, like driving for Uber or delivering groceries for Instacart.
Create a Lifestyle Budget to Help With Paying off Debts
If you have too many debts, redo your budget to allow room for paying off debts. If you free up some of your disposable income, you’ll have more room to pay the most important bills.
Will a Title Loan Show Up on My Credit Report?
While Montana Capital Car Title Loans do not currently report title loans to credit bureaus, most lenders do. If you stop making your payments and a collection agency buys the debt, they may report it. However, this isn’t necessarily a negative thing, as it can help you improve your credit score should you make your payments on time.
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.
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. 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.
It is imperative to remember that title loans should be considered a short-term solution for time-sensitive financial needs. At Montana Capital Car Title Loans, we value our borrowers’ understanding of the risks associated with any loan. You can 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 looking for title loans and want to work with a reputable company, apply for a car title loan with Montana Capital Car Title Loans today.