9 Ways To Get Out of an Auto Title Loan Without Losing Your Car
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A car title loan allows you to get cash by using your car’s title as collateral. These loans are based on your car’s value, not your credit, so you don’t need to go through traditional loan approval processes to get one. Though these loans may seem like an ideal solution to an emergency need for cash, their high-interest charges, and extremely short loan terms make them difficult to manage.
Written by Chiara King.
Updated November 28, 2021
Car title loans are a quick and easy way to get cash in a hurry by using your vehicle’s title as collateral. These loans are based on your car’s value, not a credit check, so you don’t have to go through a traditional loan approval process to get one. Though these loans may seem like an ideal solution to an emergency need for cash, their high interest charges and extremely short loan terms make them difficult to manage. They also increase your risk of having your car repossessed.
If you currently have a title loan, the best thing to do is to get out of it quickly. The following ideas may help you do that.
What Is a Car Title Loan?
A car title loan is a short-term secured loan that uses the title to a vehicle (either a car, truck, or motorcycle) as collateral. Some states don’t allow these loans at all. In states where they are allowed, these loans typically have a term of 30 days. At the end of the term, a single balloon payment of interest and principal is due. Loan terms vary by state, though, and can range from as few as 15 days to over a year. Depending on state regulations, the dollar amount of these loans usually ranges between $100 and $10,000. It’s usually capped at 25% to 50% of the vehicle's value.
Much like payday loans, car title loans are designed as a fast way to get cash for bills or emergencies. Because these loans are based on the vehicle’s value rather than your credit score, they are an appealing option if you have bad credit or no credit and need money quickly. Title loans are quick to apply for and get. An applicant can usually simply drive to a store providing title loans and leave with the loan proceeds in 15 to 45 minutes. Rolling over a previous title loan into a new loan takes even less time.
To qualify for a car title loan, the borrower must either own the vehicle outright or owe very little on it. There also can't be any liens on the title. There is usually no credit check, but the title loan company must actually see the vehicle in person. Borrowers must also show their photo ID, proof of auto insurance, and sometimes proof of income. After the new loan is approved, the lender keeps the vehicle's title until the loan, interest, and any document or processing fees are paid off.
Title Loan Interest Rates
Car title loans typically have a very high interest rate. Rates can be as high as 25% or more. This interest rate isn’t the same as the annual percentage rate (APR). Title loans have short terms, often only 15-30 days. So to get the APR, you have to multiply the interest rate over a year’s time. For example, for an $800 loan at 25% interest over a 30-day term, the APR would be 25% x 12 months = 300%. Unfortunately, this extraordinarily high APR is normal for title loans.
If you can't repay a title loan before the loan term ends, the lender may let you roll the loan over into a new loan. This will add even more interest and fees to your balance. To illustrate, let's use the prior example of an $800 loan with 25% interest over an initial 30-day term. At 30 days, you would owe a total of $1,000. That’s the initial $800 loan plus the 25% interest, which amounts to $200. If you extended that loan for another month, at the end of the additional 30 days you would owe $200 more in interest, for a total balance of $1,200. The lender will probably add processing fees to your balance, too.
Title Loans and Repossession
If you become unable to pay a car title loan according to the loan agreement, the lender has the right to repossess and sell your vehicle just like a bank would. State law determines your redemption rights prior to a sale, how and when the lender can sell your vehicle, and whether you can be pursued in court for any loan balance that is left over after the sale (known as a deficiency balance). State law also determines whether a lender must return any surplus money to you if your vehicle sells for more than you owe.
A car title loan can get expensive very quickly, especially if you have to keep rolling it over into a new loan. These loans can easily make it impossible to pay back what you owe, which increases your risk of losing your car to repossession. The Consumer Financial Protection Bureau found that 1 out of 5 title loan sequences (where the borrower has to roll over the loan into a new loan) results in vehicle repossession.
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Getting Out of an Auto Title Loan Without Losing Your Car
If at all possible, it’s best to avoid car title loans completely. If you find yourself in one, though, you can try the following things to legally get out of it.
Pay Off the Loan
One way to get out of a car title loan is to pay off the balance as quickly as possible. But this solution may be easier said than done because being short on cash was the reason you took out the loan in the first place. But if there's any way for you to (legally) gather the money to pay off a title loan, you should do it.
Sell Your Personal Property
You might consider selling some of your personal property or valuables to raise the necessary cash. You could use websites or social media to sell your property, or you could take the more traditional route and have a garage sale or yard sale.
Get a Personal Unsecured Loan
You may also be able to apply for a personal unsecured loan and use those borrowed funds to pay off the title loan. There are many online lenders that offer either bank loans or peer-to-peer loans, and some online lending sites will tell you upfront if your credit score is high enough to qualify. Even if a personal loan has high interest, its APR and loan term will be easier to handle than a title loan.
You may want to try a local credit union for a personal unsecured loan. Some federal credit unions offer payday alternative loans (PALs). These were created to provide an alternative to payday loans with dangerous terms. PALs are loans of $200 to $1,000 with terms between one and six months and a maximum interest rate of 28%. The borrower must be a member of the credit union for at least 1 month, and there are limits on how frequently a member can take out a PAL.
You may want to consider asking a family member with good credit to be a cosigner on a personal loan, which could give you a better interest rate or better terms.
Get a Credit Card Cash Advance
Another possible way to pay off a car title loan is with a credit card cash advance. Cash advances are usually pretty high in interest, and you’ll probably need to pay a cash advance fee of 5% on top of the interest. Even with these extra costs, a credit card cash advance will still be easier to handle than a car title loan.
Ask a Family Member or Employer for a Loan
Finally, you could ask family or friends for financial help, or you could request a pay advance from your employer to pay off your title loan.
If You Can’t Pay Off the Loan Right Now...
If you can't pay off a title loan right away, you could try to renegotiate your loan terms with the lender. Your chances of success may be small with this type of lender, but it doesn't hurt to ask. Above all, don't ignore or avoid your lender if you've already missed payments and you’re in trouble. That will almost certainly lead to repossession of your vehicle.
You can also consider refinancing your vehicle’s title loan by taking out a traditional car loan from a bank. If you have bad credit and can’t qualify, you might want to consider applying through a small community bank or credit union. Eligibility requirements at smaller banks and credit unions are often more relaxed than they are at bigger financial institutions. Even if a new car loan has high interest, the APR will still be much lower than a title loan’s APR. Plus, the monthly payments during a traditional 3-5 year car loan term will be easier for you to budget than a title loan’s payoff.
If You Can’t Adjust Your Terms or Refinance...
If you can't adjust your terms or refinance your title loan, you should seek debt management help through an accredited, nonprofit credit counseling agency. These agencies may be able to negotiate with the lender (and any other creditors you might have) as part of a debt management plan (DMP) to help you with your overall financial situation.
Participating in a DMP shouldn’t have a direct impact on your credit score. But DMP participation may indirectly affect your score by reducing your available credit. In the long run, making regular payments that reduce your debt through a DMP should improve your credit.
A Word About the Military Lending Act
Title lenders and other predatory lenders often target military servicemembers. If you're an active-duty servicemember, the Military Lending Act (MLA) offers special legal protections for you, your spouse, and certain dependents. The MLA restricts terms for vehicle title loans, payday loans, and other kinds of high-risk financing products. For example, it prevents a lender from:
Requiring access to your bank account
Requiring you to pay your title loan by check
Charging you more than 36% APR
Requiring you to waive certain legal rights
Requiring you to create a voluntary military allotment in order to get the loan
Charging you a prepayment penalty
Creditors can refuse to give you a loan on the grounds that you are an active servicemember and the loan violates the MLA. If you already have a high-APR title loan, the MLA could render your loan void, meaning you get to keep the money without paying it back.
Importantly, the MLA does not cover credit that is secured by property being purchased, like a loan to buy a home, motor vehicle, or personal property like a home appliance.
Car title loans are a way to get cash in a hurry using your vehicle as collateral. Car title loans are risky because their short loan terms and high APRs make them difficult to pay back. This increases your risk of repossession. If you're in a title loan, you should try to pay it off if it’s at all possible. You can do this with an unsecured personal loan, a credit card cash advance, help from your family or employer, or refinancing. You can also try to negotiate with the lender or seek assistance from an accredited credit counseling agency or attorney. The bottom line is that it's better to be out of a car title loan than in one.