A car title loan can be a slippery slope. It is a type of secured loan that allows you to use your vehicle as collateral. You can even get this type of loan no matter what your credit score, which makes it an attractive option for many drivers. However, there are certain dangers when it comes to title loans, especially if you default on one. Here are a few things you should know about defaulting on your title loan.
What is a Car Title Loan?
Car title loans are also commonly referred to as pink slip loans. The lender doesn’t check your credit because your credit score is unnecessary. However, the lender may require that you have income and accept even a bank account with the minimum cash requirement. In order to be accepted for a car title loan, all you really need is a legitimate ID, a car title that’s in your name and an extra set of car keys. The lender will give you 25 to 40 percent of the value on your vehicle in exchange for those items. You are also free to continue driving the car as long as you faithfully make payments each month on the loan.
What Does it Mean to Default on a Car Title Loan?
If you have a car title loan, the lender usually requires you to make payments toward it every month. Once you begin missing your payments and fail to make any communication with the lender, you are considered delinquent on the loan. As a result, it is considered a car title loan default, which is a failure to repay the loan as per the terms in your contract that you and the lender agreed on.
How Many Missed Payments are Considered Defaulting?
In general, the rules pertaining to defaulting on a title loan vary depending on the state. Usually, the lender specifies in their contract how many missed payments equates to you defaulting on the loan. They also tend to take into consideration a length of time you have to contact them before they repossess the car. Some states allow the lender to repossess a vehicle after the borrower has missed one payment on the title loan.
What Happens When You Default on a Title Loan?
Since a title loan dictates that your car is used as collateral for that loan, the lender can take possession of your vehicle at any time, without notice. This means the lender can show up at your home, or have someone else do so on their behalf, to seize the car. From there, the vehicle is taken to a tow site.
In some cases, you might be able to acquire the money you still owe the lender before they go the full step of repossessing the car after you have defaulted on the loan. Some lenders send the borrower a notice of repossession before actually seizing the car, which gives you a chance to pay off the title loan.
Lenders are not allowed to make threats of physical harm to a borrower. That includes threats of harm against the individual themselves as well as against property. If the vehicle in question is locked in a garage, the lender or repossession company cannot force their way in to get the car.
After a repossession company has successfully repossessed a vehicle because the individual defaulted on a car title loan, the lender then sells it in an auction. The money they get at the auction goes toward the balance remaining on the defaulted title loan. If the amount of money the lender receives in the auction exceeds the title loan’s balance, the lender must return the difference to the borrower. If there was any personal property found in the vehicle at the time of repossession, that too must be returned to the borrower.
Generally, title loans are really only appropriate for individuals who are confident that they can pay back the debt. Borrowers should always have a regular, steady income to ensure that they can make their payments timely. In addition, although getting a title loan doesn't require a credit score, only those with at least good credit would be better equipped to pay back the loan.