Thousands of Americans borrow against their cars yearly, and many of these customers turn to car title loans when unsecured 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 we know that some customers default on title loans, so perhaps it's best to consider other options if you need cash for a financial emergency. Falling behind on your payments will lead to a repossession, which can happen in just a few weeks after missing payments. A repossession results from someone defaulting on their payments, and you want to avoid 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.
Communication with your lender is crucial in avoiding a title loan default! If you are experiencing a cash crunch and can't make your loan payments, contact your account manager as soon as possible. When you let the lender in on your situation, they may find a temporary solution that helps both parties while still conforming to your state's title lending regulations. Repossession is the last resort for most lenders. Lenders are usually willing to work with borrowers to avoid a repossession.
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 pay down the balance owed.
Perhaps you cannot afford the monthly payment, but you can at least pay something. In this scenario, you can make a partial payment and let your lender know you're trying to pay the balance to avoid defaulting. Let your lender know you can't afford the full payment but that you want to make a partial payment.
Refinance the loan to avoid default.
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!
Common Questions About Title Loan Defaults
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 title loan means you've missed the most recent payment. When you first signed the loan contract, you and the lender agreed to a set repayment term and monthly payment schedule. By missing even one payment, you may face the following repercussions:
- Repossession - Defaulting on a title loan may prompt the lender to seize or repossess the vehicle. After the vehicle is repossessed, there are typically a few weeks when you can pay the balance owed and get the vehicle back. Do nothing, and the car will be sold at auction with the proceeds used to settle the debt.
- Reduction of credit score - Falling behind on payments can reduce your credit score and impact your eligibility for future loans.
- Fees- A title pawn company may also impose several fees to cover attorneys fees, 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 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 prevent 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.