Defaulting on any loan has adverse effects on your access to credit and can lead to increased interest rates and further issues getting approved for emergency funding. On the other hand, the inability to access financing makes it difficult for you to make capital investments putting a severe damper on your efforts for financial growth.
The following is what you need to know before you fall behind on title loan payments and the steps to take after you’ve defaulted on the monthly payment.
How To Know If You’ve Defaulted On A Car Title Loan
You default on your title loan when you fail to make your payments as per your agreement with the lender. That is when you fail to pay the full installment when you have agreed with the lender. At that time, you will be in breach of contract, and the creditor, backed by the law, may decide to take legal action to recover their money. Typically, a missed payment is more than thirty days overdue.
Most people don’t know what constitutes a title loan default in their state. 
Laws regarding loan defaults vary between jurisdictions, but the variance is usually minor and often you will officially default when you fail to make payments in accordance with your loan agreement. Some states may give a short grace period before you can legally be declared to be in default. But most of the time a reputable lender will stick to the individual state requirements.
You can keep the lender from initiating a vehicle title loan repossession by communicating with them and informing them of any missed payments before they actually occur. Call your bank’s customer service department when you think you will default. Communication between you and the lender allows you to negotiate. They can give you an extension or a chance to negotiate more flexible repayment terms.
Lenders are usually happy to negotiate more favorable terms because repossession is expensive and inconvenient. They also know that most borrowers would rather reach out directly than have to deal with or know their own state title loan lending laws.
Steps to Take to Avoid Title Loan Default
The only way to avoid title loan default is to pay your installments on time. There are some measures you can take to ensure that you manage the payments and they include:
- Giving a standing order to your bank regarding the amount due– Having a standing order is an excellent way of keeping your commitment to the title loan payment obligations. The order will authorize the bank to deduct the amount the moment your salary gets into the account. The money you set aside to make the payment will not come to you; therefore, there will be no chance of you using it for other purposes, no matter how urgent.
- Get a second job to make extra payments – Making a few extra dollars helps repay your loan. The money may not be much, but it will add up to a full installment with time. You can deposit every payment you get with the lender, even if it is just a fraction of the installment. When coupled with your regular payments, these small deposits create a buffer for you in case of something happens to your finances. You might even find, with time, that these deposits enable you to be a few installments ahead.
- Reduce your expenses– Repaying your car title loan will hive off a considerable percentage of your disposable income. You will need to reduce your non-essential costs for the term. Reduce your expenses on leisure activities such as costly hikes, dining out, and so on. You will have a higher margin to pay the loan and take care of other basic needs.
- Direct any extra income to the loan– Use any unexpected money such as bonuses, gifts, and lottery to mention a few to repay the loan. This extra money will help you finish paying your loan faster and reduce the possibility of defaulting.
What Happens When I Default On My Auto Title Loan?
Defaulting on your title loan can have far-reaching consequences and they include:
- Late and repossession fees– Making a late payment usually attracts penalties. You have to pay for towing, warehousing, and attorney fees if the lender decides to repossess the property in question. These costs vary in different locations. Some jurisdictions put a cap on these amounts, while others leave them at the discretion of lenders.
- Repossession– You need to know that if your car was used to acquire the loan, it is collateral. When you default, the lender has every right to repossess it. The terms under which the lender can repossess the vehicle vary across states. Some of them have restrictions for your benefit, while others have no restrictions regarding car title loans.
What Happens if I’ve Defaulted and my Vehicle has been Repossessed?
Your lender will sell the vehicle at a licensed auto auction after a typical title loan repossession. Some states require the lender to keep the property in question for some time before selling. This time may enable you to recover it, but you would have to clear the l balance plus pay for all the expenses incurred during the process.
If you don’t move to recover the vehicle or property in question, the lender will sell it for the exact amount you owe them. Even though the lender is under no obligation to sell the collateral for the exact amount owed.
If the collateral can settle the amount owed, a lender has legal obligations to make you settle the balance. Always remember, that the repossession will go on your credit report so you may want to contact the lender and see if they can stop reporting.
