You could end up losing your car if you default on your car title loan. You should consider your options to get out of this loan as soon as possible.
Even if you don’t have the best credit, you might be able get out of a loan title by working with your lender, seeking new financing options, or getting assistance from a third party.
What is a title loan?
If you don’t have the credit score or have bad credit, title loans might be appealing. They have short repayment terms, have lower credit requirements and are generally available for smaller amounts than traditional loans. Title loans can be as low as $100 and as high as $10,000.
Title loans are notoriously expensive with an annual percentage rate (APR) of around 300%. You will need your car as collateral to secure the loan. This makes them risky. If you default on your payments, your car could be taken away, leaving you with no way to drive to school or get to work. This is one reason why these loans aren’t legal in most states.
How to get out of a title loan
You may have several options to pay off your title loan and get your title back. These are some options to think about:
Your balance should be paid off early. Paying off your full balance early is a good option if you have the funds. You can save money by working an extra job or borrowing from family members to get your vehicle back.
Negotiate your loan terms. Although there is no guarantee that a lender will negotiate with your terms, it’s a good idea to ask. Ask for a reduction in payments or a lower interest rate. Make sure you get it in writing.
Refinance. Refinance loans may be an option to pay off the balance. You are more likely to be approved for a loan with lower interest rates and fees if your credit score has improved since your title loan. Experian Boost(tm),+ can instantly improve your credit score based on your Experian credit reports before you start shopping around.
Debt management is a good option. A nonprofit agency might be able help you with your debt management. It is important to note that debt management and debt settlement are two different things. Avoid debt settlement as it can cause significant credit damage.
What can title loans do to your credit?
Because title loans don’t usually run credit reports or report payments to credit bureaus, they may not have any effect on your credit. This means that timely payments towards your title loan balance will not help you build credit and improve your credit scores.
You could still be subject to serious consequences if you default on your title loan. You could lose your car and be charged late fees even if the loan is not reported to credit.
If you are behind in your payments, your lender might offer to “rollover” your debt to a new loan. However, this will mean that you have to pay more fees and interest which makes it difficult to repay your entire balance.
Title Loan Protections Available for Military Personnel
Many predatory lenders, such as car title lenders and mortgage lenders, target military personnel with their loans products. The Military Lending Act (MLA) provides special legal protections for active military personnel and certain family members.
The MLA limits high-risk terms on certain types of financing, such as title loans. Your title loan may be canceled if your lender violates the MLA. These are prohibited practices you should be aware of:
- Lenders cannot access your bank account.
- Your title loan can be paid by check.
- There is no limit on the amount of interest you can be charged.
- Avoid predatory lenders
Title loans can seem like the only way to get cash if you have bad credit. Even if you are in dire need, it is important to investigate all options before agreeing on putting your car up for sale.
Even if your credit score isn’t perfect, it’s still possible for you to obtain a personal loan. Your options for alternatives to banks and credit unions are increasing year by year. Online lenders and peer to-peer lending platforms are two options. These platforms often accept lower credit scores, and offer many benefits over auto title loans.
Lenders may not rely solely on your income, credit scores, and credit history to determine whether you are eligible for a loan. Instead, they might use other credit data to assess your creditworthiness.