When you are in financial difficulty, an auto title loan may seem like the right solution. This type of loan allows you to borrow money in exchange for your car title. But title loans tend to be expensive and keep you in a cycle of debt, which makes it anything but a smooth ride.
However, there are ways to get rid of auto title loans, and understanding how to do so can save you a lot of money and headaches.
What is an auto title loan?
A car title loan is a small loan, typically between $ 100 and $ 5,500, secured by your vehicle.
The lender gives you a lump sum of money and you hand over the title to your car and an additional set of keys as collateral. A typical car title loan has a triple-digit annual interest rate, requires payment within a month, and is well below the value of the car.
If you don’t pay off the loan on time, the lender may take your vehicle or offer to “roll over” the loan into a new loan. But you’re adding more fees and interest to the amount you already owe, which can lead to an expensive borrowing cycle.
How to get out of a car title loan
If you already have a car title loan, it is probably costing you a lot of money. But there are ways to get out of this type of loan, either by negotiating the terms or taking out a new, more affordable loan.
Repay the loan
Depending on your financial situation, the car title loan repayment may not be possible, but it slows down the borrowing cycle. First, contact the title lender and ask for the repayment amount. Next, figure out where you can get the money to pay off the loan. Consider using these methods:
- Start a side concert to earn extra cash.
- Request a salary advance from your employer.
- Sell something of value that you won’t miss.
Consider debt settlement
If you can’t afford the full amount of the winnings, figure out what you can afford to pay in a lump sum. The lender may be willing to accept a lower amount, especially if you have already missed several payments. This method is called debt settlement. Once you’ve agreed on an amount, get the details in writing and make sure both parties sign the document so the lender can’t demand more money later.
The downside is that your credit can take a hit. Although you paid off the debt, it was for less than originally agreed. The lender can report the account to the credit bureaus as “settled”. This type of derogatory mark can stay on your credit reports for up to seven years. This can lower your credit score, but you won’t have to worry about being in debt to a securities lender.
Negotiate loan conditions
Instead of settling the debt, you could negotiate more affordable loan terms. Ask for a lower interest rate, a lower monthly payment, a longer loan term, or a combination of all three. Make sure you can afford the new terms and get all the details in writing. Keeping your account in good standing on affordable terms will help you pay off debt and keep your credit healthy.
What happens if you don’t pay off the title loans?
You can choose to stop paying the title loan altogether, but with the consequences of defaulting on it.
The lender will report missed payments to the credit bureaus and could potentially send your unpaid debt for collection. Both derogatory marks can stay on your credit reports for up to seven years and can negatively impact your credit scores.
The lender can also repossess your vehicle. Some lenders require borrowers to install a GPS device on the car when they take out the loan. So if you default and try to hide the car, the lender can use GPS to locate it – and may charge you additional fees. This leaves you with even less money, damaged credit, and no transportation.
In most states, lenders must let you know before repossessing your car. If you receive this notice, contact the lender immediately and try to negotiate with the lender or refinance the loan.
Refinancing an auto title loan
Another option is to apply for a new loan at a lower cost and use the funds to pay off the title loan.
You will need to make sure that you are eligible for the new loan and check the terms of the loan to make sure it is affordable. The new loan should come with a low fixed interest rate, lower monthly payments, and enough time to repay the money.
Look at different banks and credit unions for an auto loan or a personal loan. Also check your credit cards to see if you can take out a cash advance. If you can’t find affordable terms, try getting a friend or family member to co-sign the loan or lend you the money.
As long as the loan is on better terms, it will be less expensive than constantly renewing your title loan. And once you pay off the title loan, you will get your title back as well.