Car title loans can be a quick, easy source of cash when you have a financial crisis. However, they are expensive and it can be challenging to get out of a title loan. These loans typically have high interest rates, so you pay very little each month toward the loan payoff. Most of the payment is interest, so the total you owe on the car loan decreases a small amount with each payment.
Another disadvantage of a loan on your car is you risk losing your vehicle. A loan on your car is a secured lien on your vehicle. The loan company can repossess your vehicle if you do not make the payments. Unlike other lenders, the title loan company may not call or write you a letter asking for payment. Instead, after you miss one payment, a repo company might show up at your home to take your car.
Five Ways to Get Out of a Title Loan
It is best to try to avoid title loans whenever possible. However, if you find yourself in this situation, below are five options you might want to consider.
Pay Off the Loan
Of course, the best way to get out of a title loan is to pay off the account. When you pay off a title loan, the company releases the title. Friends and family members might be able to help you get out of a title loan so you can get back on your fee. If you can pay the account in full, call the title loan company to ask for a payoff amount and payoff instructions.
Negotiate the Debt
If you have trouble making a payment, ask the company if it will work with you to renegotiate the loan terms. Make an offer of what you can afford to pay. The lender might be willing to accept the offer instead of repossessing the vehicle. Sometimes, the company might agree to lower the interest rate or make other changes to lower your monthly payments.
You might be able to get out of the loan by making a debt settlement offer. If you cannot pay the amount in full, the lender might agree to take a lump sum payment. This option might work if the car is worth less than you owe to the title loan company. The company understands that if it repossesses the vehicle, it is still a loss.
However, if the company agrees to accept less than you owe to pay off the loan, it could impact your taxes. Generally, written-off debt is reported to the IRS, and you might need to include that amount as income on your tax returns.
Refinance or Consolidate
Refinancing and consolidating loans do not get rid of the debt. However, some options could reduce the monthly amount you pay toward debt payments. In some cases, you could also find a lower interest rate, which reduces the total amount you pay for the debt.
Before you refinance or consolidate debt, use our free debt consolidation tool to determine if this is the best option for dealing with a title loan you cannot afford to pay.
Default on the Account
If you stop making payments, the company eventually repossesses the vehicle. Your car is sold at auction to repay the debt. You have the right to receive a full accounting of the auction proceeds. If any money remains after the title loan amount and costs are paid, the company should give you that amount.
However, defaulting on a loan has consequences. First, you lose your car. Second, your credit rating takes a hit. Third, the lender could sue you for a deficiency judgment, which could result in wage garnishments and other collection efforts.
You might consider a voluntary repossession instead of allowing the title loan company to initiate an involuntary bankruptcy. However, voluntary repossession has pros and cons to consider before opting for this solution.
File Bankruptcy to Get Out of a Title Loan
Filing bankruptcy might seem like a drastic way to get out of a title loan. However, if you are struggling to pay other debts, filing for bankruptcy relief could be your best option. Let’s look at how Chapter 7 and Chapter 13 can help you with a debt on your vehicle.
Chapter 7 and Title Loans
The Chapter 7 bankruptcy does not eliminate the title loan company’s secured lien on your car. However, you might have more leverage to renegotiate the contract terms so you can pay off the loan quicker and under terms you can afford. However, the loan company is not required to work with you, so you could be faced with paying the debt in full or giving up the car.
If you want to get rid of the car, surrender the vehicle to the lender. Because you surrender the vehicle in Chapter 7, the title loan company cannot demand more money from you. The debt is paid in full. Even if the company receives less than one-half of the debt owed when it sells the vehicle, it cannot sue you for the remaining amount owed on the account.
Chapter 13 and Title Loans
Chapter 13 is a repayment plan. You can surrender your car to the title loan company in your Chapter 13 case. An amount the company does not receive becomes an unsecured debt for which it can file a claim in the Chapter 13 case. When you complete your Chapter 13 case, the debt is discharged. The title loan company cannot demand more money for a discharged debt.
If you want to keep the vehicle, you can include the title loan company in your Chapter 13 plan. The title loan company receives payments from your Chapter 13 trustee. Depending on the circumstances of the title loan, you might be able to lower your monthly payments, interest payment, and the secured amount you owe for the title loan.
Ascend can help you locate a bankruptcy lawyer offering free consultations near you to discuss your situation.
Do You Have a Title Loan You Cannot Pay? Ascend Is Here to Help!
We understand that a title loan might have been your last option, and now you are stuck paying a debt you cannot afford. Call us to discuss debt-relief options to help you get out of debt once and for all.
Call or text us at (833) 272-3631 or contact us online for a free case evaluation.