How Are Title Loans Paid Back?

You can apply for title loans and get funded in as little as one business day, but you must be ready to repay the loan. With these payday alternative loans, you make payments on the same day each month, paying principal and interest with each payment. They operate like a personal loan, but the borrower’s vehicle serves as collateral.

The longer you borrow the money on a car title loan, the more interest you’ll pay. Many title loan lenders also charge higher interest rates on longer-term loans to compensate for the risk of waiting so long for loan repayment.

Each title lender offers different payment methods, including online, phone, or mailed-in payments. Some also have payment processing centers you can mail a check to or the option to pay at a money transfer location.

How Long Do You Have to Pay Back a Title Loan?

Every title loan lender has different loan terms. Like other bank loans, the time you have to pay back a car title loan differs based on your qualifying factors. Title loans can be paid back in as short as one month or as long as three or more years, depending on the lender. The less time you have to repay the loan, the larger your payment, but the less interest you pay. 

Unlike other emergency cash loans, like high-interest payday loans, car title loans have fixed monthly payments over the loan term. You’ll pay principal and interest in each payment, but as you knock the principal balance down, you’ll pay less interest. Your payment remains the same, but a larger portion covers the principal balance instead of interest.

You should consider the shortest loan term that you can afford. To determine what you can afford, consider:

• How much room you have in your budget: Carefully evaluate your budget and determine what monthly payment you can comfortably afford
• Your future plans for employment: Consider your immediate and near-future plans, such as changing jobs or returning to school
• How much you must sacrifice: If you have to sacrifice a lot to make the title loan payment, you may end up unable to make the payments

A good rule of thumb is to choose a term you know you can comfortably afford, with a little leeway in your bank account. If you can pay more than what’s owed, you can get ahead and lower the remaining balance. But if you can’t, you won’t get penalized as long as you make the minimum payment.

How Much is Needed to Pay Back a Title Loan Monthly?

How much you need to repay the car title loan depends on the following factors:

• The amount you borrow
• The loan’s interest rate
• The loan term to repay the loan

Because car title loans are secured loans, you may be able to get affordable loan terms based on your income and other existing debt. Compare your loan options using a title loan calculator to see which term is the most affordable monthly while ensuring you pay the least interest possible.

Here’s an Example:

A $5,000 loan at 25% for ten months would cost $559.06, with $590.62 in interest paid over the loan term. If you extended the term to 18 months, the monthly payment would decrease to $335.96, but you’d pay $1,047.26 in interest.

No Penalty for Early Repayment of Auto Title Loans

The good news is that most title lenders don’t charge a prepayment penalty for repaying the loan early. If you have extra money to make a larger payment, you can pay the balance faster. This decreases the total interest paid and releases the lien on your title faster. If you have a large lump sum of money and can pay the entire loan amount off, you can do that, too, without penalty in most cases.

The High Cost of Title Loan Payments

The downside of a title loan agreement is the excessive interest and fees. Lenders charge different interest rates, but it’s not unheard of to pay interest rates over 200% – 300% and loan origination fees on top of the interest. It’s important to always exhaust all other options before accepting this high-interest loan.

The Benefits of Repaying Title Loans On Time

Repaying your title loan as agreed has several benefits: 

• Defaulting on the loan can hurt your credit score significantly
• You’ll pay fewer fees, like late fees or extra finance fees
• You receive your title back quicker when you pay the loan off

How Many Title Loan Payments Can You Miss Before Default?

The rules regarding how many title loan payments you can miss before default varies by state. Your title loan contract will state how many payments you can miss before the lender initiates repossession.

The lender can repossess the vehicle when you default on your title loan. Not only does this mean you no longer have a car, but you could be on the hook for the difference between the amount the lender sells the car for and your remaining balance. If the loan is paid from the proceeds, you won’t have to pay more money, but the repossession can significantly damage your credit score.

Actions to Take if you Cannot Repay your Title Loans

If you are unable to pay your car title loan on time, consider these tips:

• Contact your car title lender: Don’t ignore that you can’t pay your auto title loan. Contact your lender and tell them what’s going on. They may have options to help you avoid default.
• Ask friends or family for help: If you can’t pay your title loan payment for a month or two, consider asking a family member to help you until you get back on your feet.
• Find ways to cut back on spending: Evaluate your budget and determine if there is anywhere you can cut back so you have a little extra money to make your title loan transaction.

If you can’t get the help you need, consider other options, like refinancing your house, renegotiating your terms, or cashing out a life insurance policy.

Frequently Asked Questions

Final Thoughts

Title loans are paid back in regular installments, usually as monthly payments over a few months or years. The key is to keep your loan term short. This helps limit the total interest paid on the loan. However, be cautious not to get in over your head with a monthly payment that you can’t comfortably afford.