Car title loans provide consumers with an easy and fast source of cash. On the other hand, they are dangerous and can lead to many problems. The biggest issue is that they are difficult to pay off and end up costing drivers much more than they bargained for.
Even if you play by the rules and make your payments on-time, some shady title loan businesses will hit you with hidden fees, penalties, or high interest rates.
Because vehicles are often used as collateral for a loan, they tend to have a decent amount of equity. That allows lenders to offer a short-term cash loan with a very high interest rate. If you don’t pay it back promptly, you face repossession. That’s how some of those places stay in business, and it’s why many people wonder how to get out of a title loan quickly.
If you’re buying a car and looking for information on car title loans and how they affect the sale, click below to run a Vehicle History Report to discover title liens attached to the vehicle.
To be clear, this article is not about traditional car loans obtained through a bank. This is about those here-today-gone-tomorrow businesses that pop up overnight and offer you quick money using flashy language like CASH NOW FOR TITLE LOANS. The kind with insanely high APR if you ever miss a payment.
We’ve got the answers you need! This article will help you brainstorm ways to escape a car title loan. Some of your options involve paying or moving the debt, while others don’t cost you anything upfront. And just remember, we aren’t attorneys and this article is not legal advice, so if you need to escape a car title loan and you want legal guidance your best bet is to contact an attorney.
We hope this article will show you the dangers of car title loans. If you are considering one, there may be much better ways to get money in a pinch and we will talk about them now.
The Best Solution: Pay It Off
It sounds obvious, but the best way to get out of a title loan is to pay off the debt. Of course, that isn’t always as easy as it sounds. Let’s face it; if you had the money, you wouldn’t have taken out the car loan in the first place.
If you come up with the cash to pay, simply contact your lender and ask for the payoff amount. They may not make it easy for you but be persistent and you’ll get the facts you need. But there are other ways to pay off your loan without actually having cash to do it with.
Let’s discuss some potential ways to pay off a car title loan. We will then discuss alternatives to paying off the loan.
Apply for a Traditional Car Loan
If resolving the debt isn’t an option, you might want to consider getting a traditional car loan and using it to pay off your title loan. Unlike the title loan, a traditional car loan is done through reputable sources like your neighborhood bank. They offer competitive rates and have term lengths all the way up to several years.
Traditional vehicle loans are much easier to pay off than a title loan. The downside is that you’ll need good credit and most require you to have a late-model vehicle. Some car loans aren’t funded immediately and others will have similar interest rates to what you’re already paying, but anything you can do to get away from a title loan is worth looking into.
If you’re on the fence, it doesn’t hurt to stop by your bank and ask them what they can do for you.
Apply for a Personal Loan
You also have the option to apply for a personal loan. Contrary to popular belief, you often won’t need a high credit rating for a personal loan if you have some form of collateral. Typically, a personal loan lasts for at least five years, so this gives you plenty of time to pay off your debts.
The magic of a personal loan is that it isn’t attached to any particular vehicle. That means you’re free to pay off your title loan and sell the car at any time to use the money for something else.
Use Your Credit Card Cash Advance
Because most car title loans only cover a few thousand dollars, you might be able to take out a cash advance with your credit card to pay it off. While credit cards typically carry a high interest rate on all cash advances, this method may be a suitable option if you don’t have an excellent credit rating and couldn’t get another loan.
Don’t want to get a loan or borrow money on credit? There may be some other ways you can gather the money to pay off a car title loan.
Borrow Money from a Friend
Do you have friends or family that can help? It might be embarrassing to ask, but most people that care about you will probably want to help once they understand the situation. They may not be in the financial position to come to your rescue, but it doesn’t hurt to ask.
If they agree to let you borrow money, be sure that you set up strict guidelines regarding the repayment and offer them interest as a courtesy. After all, your relationship is more important than any amount of money.
Get a Home Refinance Loan
If you own a home and have some equity, you might be able to apply for a home refinance loan. These have lower rates and can give you a good amount of money. This might not be an ideal solution for many, however, because it can take up to 30 days before you receive the cash.
On the other hand, if you have a lot of debt besides the car title loan that you want to pay off, this is a great way to do it all at once.
Cash Out Your Life Insurance Policy
When you think about the cash assets you have, many people forget about their life insurance policy. If you have one for more than a few years it’s likely to have cash value.
Just make sure you understand what you’re getting into. For example, some policies allow you to repay the loan over time while others are going to force you to cancel the plan once you take money out.
Sell Your Car
If you don’t pay off the title loan, you are going to lose your car. Wouldn’t it be better to sell it and pay off the debt? Sure, you might have to get a new form of transportation, but it’s often better to take that temporary inconvenience than to destroy your credit score because of a repossession.
Of course, selling your car with any type of lien on it proves to be slightly more difficult.
Default on the Loan
Of course, you could always stop paying on the title loan, but that’s not a good idea. Defaulting on a car title loan will damage your credit score and lead to repossession. You’ll be left with no vehicle and damaged credit.
You can also choose to voluntarily surrender the car to the lender to end the loan, and that might also lower your credit score. Not to mention, you lost your car, but at least it wasn’t a repossession.
File Bankruptcy
Filing bankruptcy can offer relief from auto loans and past-due debts. To be clear, bankruptcy is rarely a good option. It’s only worth considering if you have a large amount of debt – generally more than what you’d get from a car title loan by itself.
Once you file bankruptcy, your credit score and your ability to obtain new loans will be damaged significantly. Sometimes, bankruptcy doesn’t get you out of the loan and you could still face the repossession of your car.
Consult an attorney to determine whether your situation calls for bankruptcy.
Military Members
If you are in the military or a dependent, you might have some additional protection through the Military Lending Act. Speak with your financial expert to receive guidance.
Bottom Line: Avoid Title Loans at All Costs
As you can see, most of the ways to get out of a car title loan without paying it off have serious consequences. Even if you play by the rules and make your payments on-time, some shady title loan businesses will hit you with hidden fees, penalties, or high interest rates.
We can’t stress enough how vital it is to stay away from car title loans in the first place, or if you already have one make this car title loan your last one. Then you won’t have to worry about any of this! There are much safer ways to get cash if you are in a bind, such as the methods found in this article.
You’ve worked hard to build up an emergency savings and earn yourself a good credit score. A car title loan risks everything you’ve worked so hard to achieve. If you find yourself in desperate need for money, sell your car for something more affordable or go through the proper channels to secure a loan through a bank instead.
Dirt Legal offers VIN Checks and title replacement for cars, motorcycles, and almost anything with wheels. Click the links to learn more about our services.
We are not attorneys. This article is not legal advice. Cover image source
A title lien could come from a loan, unpaid mechanic work, an IRS action, or even a family court settlement.