How to Get Out of Your Title Loan
Title loans are a financial instrument that has its purpose. However, sometimes you want to get out of a title loan, which can be difficult. They can be more expensive than other loans, and the maturity may be longer than you like. You continue to pay month after month, and if you miss payments, you could face risks like losing your car. Then your ability to get to work is gone.
Are there ways to get out of a title loan? Yes, here are several options to help protect your financial stability.
The Best Solution
Ideally, you can get out of a title loan by paying it off. That might present some problems. You would not need a loan if you had a lump sum of cash. However, if you have the cash now to pay off a loan, contact the lender and double check about payoff instructions. You may have to jump through some hoops. Typically, lenders would prefer to let a loan continue through to maturity and collect interest. The best part is that once you pay off a title loan, you get back the title.
Consolidate the Loans or Refinance
Another way to eliminate a title loan is to replace it with a different type of loan. This may not help with a cash shortage, but you should have lower payments overall. A fixed-rate loan from a credit union, bank or online lender can be less expensive than continuing to pay the title loan. You might be able to use an advance on your credit card if it has a lower interest rate. Just be certain to pay that back prior to any promotions ending.
If you are unable to get a better loan, visit your local credit unions or banks, where you may be able to qualify. You can also try online peer-to-peer lending. As a last resort, someone you are close with may co-sign a loan.
Swap the Car for Another
If you are short on cash, you can look into selling the car to generate a lump sum of cash. It may be a little extra work to sell it when you don’t have clear title to the car and still owe money, but it is possible. People do it all the time. Swap out the car for a less expensive model, and you might be able to save hundreds or even thousands of dollars in interest and fee. You will also have better monthly cash flow with smaller payments.
4. Negotiate with Your Lender
Your lender may be willing to restructure or buyout your title loan, so it may be worth a phone call to check it out. Talk to them about what you can afford and as for a restructure. You might be surprised. If you are facing true economic hardships, the lender may work with you to ensure continued payments rather than write off a loan as a loss. Even if you aren’t in such a serious situation, you lender may still have options. They may be able to lower the interest rate or other types of adjustments that result in lower payments.
Be careful. If the lender accepts less than the total amount of the loan, your credit score will take a hit. You might have lower credit scores for many years until the data drops from the report. Borrowing in the future will be more difficult. Plus, check first about tax consequences. The IRS may consider any reduction in the loan payoff as ordinary taxable income.
Default on the Loan
This is one of the last options to consider. If you default on a loan, you stop making payments. Your car will be repossessed by the lender, and your credit score will most likely range in the “poor” category for years. You will have no car and bad credit. You can try to voluntarily surrender the car, which might be a better option. However, your credit score will still suffer. If your financial situation is truly dire, at least you will have more cash each month without a payment.
File for Bankruptcy
Always check with an attorney first. An attorney will discuss your situation and file the bankruptcy papers with the court. In addition, an attorney may have ideas on your specific situation that this article cannot address. In many instances, a bankruptcy will provide limited relief from a title loan on a car. If will help you avoid deficiency judgments and personal liability. However, the car is still collateral for the title loan. It could still be repossessed if you stop making payments.
In the U.S., the Military Lending Act offers protections for service members and some of their dependents. If you are in the military, discuss your options with a financial expert.
Avoid a Title Loan
It may be too late now, but the best option is to forgo title loans completely. Once this situation is behind you, you will have other financial challenges. That’s just a part of life. So, build an emergency savings account to cover at least three to six months of expenses. This should give you a breather from having to take out a title loan.