What Happens When You Default on a Title Loan?
Getting an emergency loan without going through a lengthy approval process was like a dream until the emergence of a title loan as an effective alternative source of money. It is now an easily accessible financial tool for most of the Americans living on paycheck to paycheck.
A title loan also known as auto title loan is a short-term secured loan approved within just a few minutes. The unique feature of this loan as compared to a traditional loan is that its lenders never check your credit score, financial history, bank account details, or job status while granting a loan. In order to obtain a loan, you just need to produce a lien-free vehicle title and an ID proof. The loan estimation is done based on the value of the vehicle. In the US, some title lenders offer more than 70% of the value of your vehicle, while allowing you to drive your dream car. However, you have to surrender the title of your vehicle till the repayment of a loaned amount.
Title Loan Default
Loan default is a situation, when a borrower fails to repay a loan as per the terms agreed to in a promissory note. Where the constitutional provisions allow a lender to take necessary legal actions against the borrower to recover the loaned, the lenders are barred from taking extreme measures like physical attacks, forcefully takeover of assets or any such measures that may spoil the dignity of a borrower for recovering the loan.
It is a myth that most of the lenders charge interest rates so high that the borrowers find it quite difficult to repay the loan and ultimately end up defaulting a loan. The title loan industry in the US has undergone major positive transformations over the years. The number of title loan companies has increased considerably in the past few years. The loan market is now highly competitive. The companies come up with lower interest rates and multiple repayment options in order to win the hearts and minds of the customers by enabling them to repay the loans in affordable installments and avoid defaulting. Some lenders even allow customers to renew it for a fee in case they are unable to pay off.
Currently the vehicle title loan market enjoys legal status in more than 20 states in the country. Over the years the federal and state governments have made meaningful amendments in their financial laws, so as to protect the rights and interests of the customers.
- The military APR (annual percentage rate) for car title loans bearing a tenure of 181 days or less should not be more than 36% as per the federal law.
- In Illinois, the state government has imposed restrictions on lenders in providing loans with balloon payments, so that the customers can repay the loan in equal installments, similar to conventional vehicle loans. Further the loans can be refinanced, but only if the customer has paid up to 20% of the principal on the loan.
- In several states, the title lenders cannot charge interest rates arbitrarily. The Federal Truth In Lending Act legally binds the lenders to disclose all cost of the loan amount.
- The Federal Trade Commission declares that a lender cannot make threats of physical force against a customer under any circumstances.
How to Avoid Title Loan Default?
Proper Planning – The first and foremost step to be taken to avoid a loan default is proper planning. You should make wise use of money and avoid unnecessary expenses.
Don’t Take New Loan – How tempted the new loan offers maybe, you should voluntarily refrain from taking it since you are already having a loan due. You should always try to clear the previously taken loan amount, or else the financial burden will be increased.
Focus on Small Saving – Just as a proverb goes: ‘little drop of water makes a mighty ocean’. Similarly, your modest saving will really help you a lot at the time of debt repayment.
Opt for a reliable lender – You must select a credible lender, who has years of existence in this business. This is because a reliable lender will never mislead its customers.
Critically analyze loan terms – You should minutely review all terms and conditions of a title loan. In case you face any trouble in understanding, it is always better to take the help of an expert, who can easily guide you.
Payment Options: You should explore various payment options so that you can make your monthly payment on time.
Roll over Option: In some case, opting for the rollover option is better if you fail to pay the installment. The lender will allow you ‘rollover’ the loan into a new loan.
On the whole, it can be said that there are certain exceptional circumstances, which may compel a customer to default a title loan, in actuality he/she always wants to avoid such situations. However, with the emergence of title loan and its hassle-free process along with the flexible payment options offered by the lenders, being financially secure at the time of financial straits has become extremely easier. It is only by virtue of the amazing quality of this amazing and quick cash facility people are now able to make proper management of their unexpected expenses.