An auto title loan can be a useful tool when you need to resolve an urgent financial need. However, while easy qualifying and fast approvals can make one of these loans easy to get, it’s important to ask, “What happens if I don’t pay my title loan?” After all, defaulting on your car title loan can have serious repercussions, including the seizure and sale of your automobile. Here's what you need to know.
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What are the Consequences of Not Paying a Title Loan?
An auto title lender will consider your loan to be in default if you fail to make a certain number of loan payments as specified in your loan agreement. That number can vary according to the terms of your loan. The first consequence of defaulting you’ll typically encounter is that your lender or loan servicer will make numerous attempts to reach you. Collection efforts typically inculde all available communication channels, including phone calls, email and letters. In addition, you can expect that the outstanding payment will soon reflect as a negative mark on your credit profile at the credit bureaus (Experian, EquiFax and / or TransUnion), if your lender or loan servicer reports to them. This will diminish your credit scores.
Meanwhile, the interest on your loan will continue to accrue, increasing the amount you owe. Some lenders also impose fees when payments are not made on time.
In extreme cases, the lender may also take legal action, which could result in a judgment being rendered against you. If you lose a non-payment related lawsuit, this could mean wage garnishment or bank account levies and even greater damage to your credit score. You could also incur additional legal fees and court-related expenses. And again, the lender can sell your car to recover the outstanding balance of your loan.
What Happens if My Vehicle is Seized by a Lender?
In most states, auto title lenders are required to notify you before seizing your vehicle and selling it at auction to cover your debt. In many states, they are also required to tell you what you can do to get your vehicle back before it is sold. This generally includes paying your loan balance, plus fees and penalties. You may also be offered the option of reinstating your loan, which would return your car to you. If your car is sold for more than you owe, you will be given the difference, less towing, storage and auction fees. Conversely, if it is sold for less than you owe, you’ll still need to make up the difference in many states - including interest and fees.
What Can I Do if I Can’t Pay My Title Loan?
You should contact your lender or loan servicer immediately if you think you’re going to have trouble making your loan payments. You may be able to negotiate a refinance with a lower-cost loan. The potential benefits of this strategy can include more time to pay off the loan and a lower monthly payment.1
Enrolling in a credit counseling program may help you build a budget to prioritize which debts to pay first. Credit counselors review your finances to see where you can make adjustments to your spending to free up the cash to make your loan payments. This can help prevent your situation from getting worse.
Try borrowing from friends or family members if you don’t have the cash on hand to pay off your loan. You might also consider tapping into personal assets that have cash value, such as stocks or life insurance. Reaching out to churches or charities for emergency assistance to help cover at least part of your title loan balance can sometimes work too.
What Preventive Actions Can I Take to Avoid Default?
Actions you can take to avoid default if your finances are shaky and you’re concerned about making upcoming title loan payments include:
- Creating a budget. Establish a budget that will accommodate loan payments before accepting the loan.
- Selling personal items or getting a side gig. You’ll have less stress if you can set aside a payment amount in case of an emergency.
- Borrowing only the amount you need. Taking more cash than you need can make repaying the loan more difficult.
- Setting up automatic loan payments. With this approach, you don’t have to worry about forgetting to make a payment.
- Communicating with your lender. If you’re having trouble making loan payments or anticipate that happening, get in touch with your lender right away to explore your options.
While unexpected financial challenges can arise without warning, it’s crucial to make every effort to avoid defaulting on your title loan. It is always a good idea to contact your lender before you miss a title loan payment to get out in front of the situation. The best lenders already have plans in place for you to consider. This is why car title loans serviced by LoanMart come with exceptional customer service, outstanding support and transparent terms. Apply today to see how a LoanMart-serviced car collateral loan can benefit you.
