What you should know

• Budget wisely and explore options to prevent increasing title loan debt.
• Communicate with your lender to arrange payment plans and reduce default risks.
• Defaulting on a title loan may lead to losing your vehicle and harming your credit.

Title loans can provide you quick cash when you need it, but they can also be risky. These loans typically have a shorter repayment time and have higher interest rates, and they use your car as collateral. This means that if you can't pay back the loan, you could lose your car.

If you don’t pay the loan back on time, that’s called defaulting. The consequences of a default can lead to serious problems such as losing your car and possibly hurting your credit score. These actions can make it harder for you to borrow money in the future. This article will help you understand what happens when a title loan is in default.

What is a Title Loan?

A title loan is a secured loan using your vehicle title as collateral. It allows you to access funds based on your vehicle's value. They are typically short term loans of 30 days or more and require the full amount to be paid plus interest to reclaim the title.

Title loans can vary in loan size, influenced by the vehicle's worth and the lender's policies. They can range from modest sums, often between $100 and $1,500, to more significant amounts, potentially reaching $5,000 to $50,000.

Below is a simplified breakdown of title loans:

• Vehicle Title: Provided as collateral.
• Loan Term: varies (depending on lender).
• Loan Amount: $100 to $50,000 (dependent on vehicle value).
• Loan in Full Repayment: Required to redeem the title.

Title loans are designed to provide quick financial assistance. Still, you must consider your ability to repay within the set timeframe to avoid potential repercussions like vehicle repossession.

Discover more: Title Loan Definition

What Does Defaulting on a Title Loan Mean?

If you don't pay back a title loan, it means you have “defaulted” on the loan. Different lenders and states have different rules about what it means to default. When you default, the lender can take legal steps, and they might repossess your vehicle that you used as security for the loan.

When you default on a title loan, you risk losing your car. If they sell your car for less than what you owe, you might have to pay the remaining balance depending on your state’s laws. Also, defaulting could possibly hurt your credit score, making it harder to get loans in the future, affecting job opportunities, and leading to higher interest rates.

What Can Cause You to Default?

There are many reasons why people might default on their title loans. Sometimes, unexpected things happen, like losing a job, having a medical emergency, or other big expenses that make it hard to pay on time. If you're having trouble paying your title loan, it’s important to talk to your lender as soon as possible. Many lenders may have options to help you, such as changing the payment plan. It’s better to reach out early to avoid bigger problems later on.

Consequences of Defaulting on a Title Loan

If you default on a title loan, the biggest risk is losing your vehicle, which is the collateral for the loan. When that happens, the lender can take your car according to state rules. They can also charge you for towing, storage, and auction fees, which could be more than $400. Check your state’s laws to find out more about what kind of fees can be charged in your state.

Your interest might keep adding up if you default, making the total amount you owe go higher until the loan is paid off. Plus, missing payments could get reported to credit agencies and can hurt your credit score for a long time.

Your vehicle could be repossessed

If you default, the lender could take your car. Some states require them to let you know before they do that, while others don’t. When they sell your car, if the sale price is less than what you owe, you might have to pay the difference depending on what state you live in. In most cases, trying to hide your car to avoid repossession could lead to legal action and additional costs.

Possible impact on your credit score

When you don't pay back a title loan, it could hurt your credit score. This is because some lenders tell credit bureaus about missed payments, which shows up as bad information on your credit report. This can lead to higher fees, penalties, and interest rates in the future, making it harder to manage your money and get loans later on. Additionally, if your vehicle is repossessed by the lender, it could leave a big mark on your credit history, which can stop other lenders from wanting to help you with loans in the future.

You might receive lawsuits and judgments

If you stop paying your loan, the lender might take you to court to get their money back. This could result in them getting a judgment, which means they can take money directly from your paycheck or bank account if those options are available in your state. Going to court can also add extra costs for legal fees and court expenses.

Options to Help Manage Your Loan

If you're having trouble making payments on a title loan, there are ways you can try to fix it. Talking to your lender’s customer service is important because showing them you want to work it out might help. Here are some things you can do:

Negotiate New Terms

You can talk to your lender about changing your payment terms, which might make your payments easier to handle.

Pay Past-Due Amounts

Depending on how past due you are, making any missed payments and late fees could bring your account out of collections. Talk to your lender regarding whether that’s the case.

Request Lower Payments

You can ask your lender if they would let you make smaller payments or refinance the loan, which might help you get back on track.

Redemption

If your lender recently repossessed your vehicle, you have the option to get your car back if you pay off the entire loan and any fees. However, there’s often a short time limit for this. Your lender may also give you the option to reinstate your loan which includes returning your vehicle.

Being proactive can help protect your money and prevent serious problems like losing your vehicle, which may even hurt your credit score. Check your title loan agreement to understand what remedies the lender has and what options are available when an account is in default.

Preventive Measures to Avoid Default

Avoiding a title loan default starts with choosing loan terms that fit your budget. Before signing any agreement, make sure the repayment plan aligns with your current financial situation. This helps ensure you can make on-time payments without added stress. If you anticipate difficulty making a payment, contact your lender as soon as possible—many are willing to work with you on modified payment arrangements to help you stay on track.

One smart move is to set up automatic payments, which reduces the risk of missing due dates. If your finances take a hit, ask your lender about refinancing options that might lower your monthly payments or interest rate. Staying on top of your budget and making your loan a top priority are key strategies to avoid the negative consequences of defaulting on a title loan.

Discover more: How to Pay off Your Title Loan Faster

The Final Word

Defaulting on a title loan can result in a complicated financial situation. It may lead to the loss of your vehicle. If you cannot keep up with the monthly payments specified in your title loan agreement, you could experience a decline in your credit score, have negative marks on your credit report, and face legal action from lenders. Also, lenders may charge repossession fees and other penalties for missed payments, making the outstanding loan balance even more challenging to repay.

If you face financial challenges, contacting your title loan company is essential. Many lenders are understanding and open to discussing flexible repayment options or offering grace periods to help you stay on track.