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.
Most people don’t know what constitutes a title loan default in their state. Laws regarding loan defaults vary between jurisdictions, you will typically default when you fail to make payments according to your loan agreement. Some states may give a short grace period before you can legally be declared to be in default.
Lenders are usually happy to negotiate a new repayment term because repossession is expensive and inconvenient for them. So don’t hesitate to contact your lender if you’re concerned about falling behind on the loan.
Steps to Take to Avoid Title Loan Default
- 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 car in question for some time before selling. This may allow you to get back to current on your payments and eventually get your car’s pink slip back