Car title loans are short term loans secured by your vehicle. As such, they require you to pledge your vehicle as collateral. This means if you default on the loan the lender can repossess your vehicle.
Typically this is not the first step the lender will take to collect on the loan. Most lenders would much prefer to continue with the loan rather than repossess the car. After all, lenders are in the business of making and servicing loans, not selling cars.
This post covers what to do if you miss a car title loan payment as well as consequences of defaulting on a title loan.
Missing a car title loan payment can be a very unnerving process, but taking no action will only make the situation worse. Do not panic or overreact if you know you are going to be late with or miss a title loan payment.
If you followed our previous posts and did your research, you found one of the best title loan companies for your title loan. These companies work with borrowers to help solve problems and get the loan back in good standing. For this to occur, both parties (you and the lender) need to be willing to work towards a solution.
Missing a Car Title Loan Payment
Missing a car title loan payment can be stressful. Sometimes unforeseen circumstances happen and you may not have enough funds to make your payment on time. Even the best planned repayment strategies may become interrupted. That is how life works sometimes.
The first thing you should do if you miss a car title loan payment is contact the lender. Do this as soon as possible. Sooner is better and preferably before missing the payment if possible. This is very important.
While contacting the lender may be the last thing you want to do, it is essential for several reasons. We mentioned that both parties need to be willing to work toward a solution. For your lender to be willing to work toward a solution they need to be assured that you are as well.
Communicate with your Lender about the Payment
Communication is the key to maintaining a relationship with the lender and maintaining a relationship is key to making sure repossession is a last resort. Contact your lender and let them know you are working on a plan to get your loan back on track. Ask them what your options are.
Early Notice is Better
If you know you are about to miss a payment, call your lender and let them know. The sooner the better. Giving them notice means they will not be surprised when your due date comes and goes and there is no payment made.
Some of the best title loan companies will even waive the late fee on your first missed payment if you give them notice. Most lenders are also much less likely to consider repossession is these cases.
Make a Plan to get up-to-date
We mentioned your plan to get the loan back on track earlier. If you miss a payment, come up with a plan to make the payment and get back to your regular schedule. Why did you miss the payment? How can you avoid this in the future? What is your plan to make up the missed payment?
These are all important questions that you need to answer to make sure you have a solid solutions to communicate to your lender.
Perhaps you need to make weekly payments of a certain amount to get up to date. Sit down and go over exactly how you can get your account up to date and stick to it. Car title loans are expensive and the sooner you can close the loan the better.
Hope is not a Plan
Missing a payment and hoping the lender doesn’t take action to collect is not a plan. This usually results in negative consequences. The first is a loss of a trusting relationship with the lender.
The longer you go without communication the worse the relationship gets. Eventually, it will not be able to be repaired. When trust and communication no monger exists, the lender often considers repossession.
Communicate the Payment Plan
When you finish coming up with your plan to get up to date, contact your lender with the details. Assure them you are taking your loan seriously and are doing your best to get back on track.
Ask for some flexibility if needed, but make sure to stick to your commitments.
Remember, a default can lead to excess interest, fees, and even repossession. Providing a detailed plan to your lender will help avoid the worst of these consequences.
What about Hiding the Vehicle?
Hiding the vehicle is obviously not recommended for several reasons. Some borrowers do resort to this strategy. Unfortunately, this only delays the inevitable and increases the cost of the loan.
The title loan agreement likely has a clause about hiding the vehicle. Interest will continue to accrue in most cases and the lender will have no choice but to repossess the vehicle.
This is not a solution to missing a car title loan payment.
Title Loan Default Consequences
You will need to check your loan agreement for the definition of a default, but usually it is a missed payment. The consequences of a default include:
Late Fees and Interest Charges
A default will usually result in late fees. Additionally, interest will also continue to accrue after the missed payment due date. As time passes these charges can add up and increase the amount you owe significantly.
Will a Missed Title Loan Payment Impact Credit?
This depends on whether or not the lender reports your payment history and loan status to credit bureaus. Some title lenders do report payments to credit bureaus. Some do not.
Make sure to check with your lender to find out if they report payments. If the lender does report to credit bureaus, and, you default on your title loan, this will likely reduce your credit score.
Finally, a default can result in repossession. This is typically the last resort for resolving the payment problem, but it can happen after one missed payment. Choosing your lender wisely to make sure repossession is indeed a last resort.
Again, this is why it is important to keep an open line of communication with your lender.
How does Repossession work?
In repossession cases the lender hires a recovery company to recover (repossess) your vehicle. The lender may or may not notify you before putting this process into action. Different states have different rules.
The loan agreement should contain the details about the repossession process. Most recovery companies perform a skip trace to aid in locating the vehicle.
Additionally, the larger companies have a number of technological tools at their disposal. Hiding the vehicle may work temporarily, but eventually the recovery companies find the vehicle most of the time.
It is a misconception that title lenders want to repossess cars. Most lenders would much prefer you make your payments. The only party that benefits from a repossession is the company repossessing the vehicle.
Getting the Vehicle Back
Usually you will have the option to get the vehicle back if it is repossessed. To do so you will need to pay all outstanding charges in full. This includes any balance you have with the lender including late fees, interest, and any costs associated with repossessing the vehicle.
In some cases the recovery company charges a daily storage fee as well. It is much better to avoid this by communicating with the lender and sticking to any plans made to get your loan on track.
Lender Selling the Vehicle
The other option following repossession is the lender selling your vehicle to recover their costs. Depending on the outstanding balance and vehicle value, the lender may end up with more or less than you owe (a debit or a surplus).
In some states lenders are required to return to you any surplus. In other states they can keep it. Make sure to read your loan agreement in full and understand the title loan laws in your state.
Missing Multiple Payments
Hopefully after the first missed payment you came up with a plan to get back on track as discussed. Sometimes, this plan is disrupted by the unexpected and multiple payments are missed.
Let your lender know as soon as possible how much you are able to pay and when. Not all lenders can accommodate every situation, but they will be more likely to work with you if you are open and honest.
Making regular payments, even if they are small amounts, typically does help. Some of the larger companies may have policies that don’t allow them as much flexibility in these situations.
If you are missing multiple payments because the interest is more than you can afford you may want to consider refinancing your title loan. In some cases refinancing can lower your payment significantly.
Missing a loan payment can be stressful. If that payment is for a car title loan it can lead to losing the vehicle. This is usually the last resort for many lenders and why it is important to keep an open line of communication with your lender.