Particularly in times like this, a household’s bill can take a backseat to ensure that there is food, housing, and adequate transportation. In the face of hardship, advertisements representing ‘cash available in a matter of minutes with no hassles’ or ‘take a loan even if there have been difficulties with traditional lenders in the past’ are more than tempting. A car title loan seems like it is the ideal answer to every problem happening at the moment.
In the state that the desperate person in this scenario is in, there is no downside that they can comprehend. But the FTC or the Federal Trade Commission, who is the nation’s consumer protection agency, warns the average citizen to take a breath and genuinely research exactly what involving themselves in this process will entail. In doing so, most will employ other options.
What Is A Car Title Loan?
A car title loan also referred to as a ‘pink-slip’ loan, uses a clear-titled vehicle as the form of collateral for a short-term, low-amount, and high-rate line of credit. It is ultimately a costly option for credit. Your vehicle is not only at risk for unpaid loans, but you could lose other valuable assets along with your transportation.
Some of those who are more aggressive in their lending practices will give loans to people who have equity in a vehicle, without a clear title. Often the term is as few as 15 days or as much as 30 days, but the APR (annual percentage rate) is excessively high compared to any other form of credit. The amount will typically fall in a range equal to approximately 25 – 50 percent of the car’s value or as much as $5,000 with advanced lenders going much higher.
How Can You Apply For A Car Title Loan?
Lenders will work from either a storefront or operate online when conducting business. In either situation, an application is required with the online users receiving a compilation of stores close to them where they can present their car along with the clear title, proof of insurance, and photo identification.
The transaction has to be approved and finalized in person. As a rule, there is a requirement for a duplicate of the keys to the vehicle. When you take out a loan of this type, you should take these considerations:
- Thoroughly read each item under terms of the loan. If you don’t receive these, ask for them and don’t sign any paperwork and most certainly don’t leave until you receive them. The lender must provide you in writing of the terms of the loan before any signatures being given. According to the Federal Truth In Lending Act, all car title loans are treated as any other form of credit, meaning the cost of the loan has to be disclosed. You must receive the dollar amount for the finance charges and the (cost of credit based yearly) APR. The amount borrowed along with the interest rate and the credit costs charged plus the loan term is taken into account in figuring the APR. Considered as well are the addition of the lender’s finance charge and any potential extras like document costs, processing fees, loan origination, late charges, lien costs, and title expenses.
- Watch out for add-ons: Some lenders have required ‘additions’ to the loan that may cost more money, which could include things like roadside assistance service. In most cases, the cost will be based on the value placed on the loan. If these are a mandatory aspect of obtaining the loan, they will be added to the APR and finance charge, further increasing the credit expenses themselves though these are quite costly. After the approval process, the cash and title are exchanged and will not be returned until the loan is paid in full.
How Car Title Loan Payments Work
For people who may have difficulty getting back into the store to pay their loan in person, there are other options available, such as an online system and an automated repayment system.
Using the automated repayment plan means passing a lot of secure information on to an insecure organization. That is often not a good idea if it requires that you authorize the lending agent to remove their payment from your banking account or debit card on the due date.
The claim is that these institutions cannot take recurring debits without a specific agreement with you in advance regarding the transactions coming out of your bank, and even at that point, you must receive a written copy showing your authorization.
What Does It Mean To ‘Rollover?’
For a person who is unable to pay their loan back within the term period, the lending agent can offer a ‘rollover’ which involves adding a new loan to the previous unpaid balance. In this process, there will be additional fees and more interest accrued on the initial amount borrowed.
The claim is that this has the potential for resulting in a snowballing cycle of borrowing/rolling over that original amount into a steadily increasing volume that can’t possibly be repaid, resulting in repossession and potentially worse. There are instances where people have taken out loan after loan as a means to pay the previous to a point where they lose everything often in bankruptcy.
What Happens With Repossession?
If the lender is forced to take possession of the vehicle, it is devastating to the person holding the loan. You no longer have the freedom to go to work or retrieve the necessities to live, and you lose the value of the car. Some lending agents will go so far as to require that a GPS tracking device installed in the vehicle for quick access.
Defaulting can be expensive, and it can affect whether you qualify for any type of credit in the future. If you see that you are having difficulties and you’re beginning to fall behind on the payments, there are things you should start a conversation with the lender.
What Does It Mean To Default On An Auto Title Loan?
Each vehicle title lender has their own interpretation of defaulting on a loan and the state regulations. The rule of thumb is the failure to make a specific amount of payments, which can equate to merely one in some cases, will break your contract and put you in ‘default.’ From that moment, the lender has the legal right to repossess your car.
In most cases, those who borrow money realize when there comes a time when they can’t make a payment. Instead of merely letting it pass by with no recourse, speak to the holder’s representatives to see if there is any help available to you. Some will give an extension to the current loan, while others may provide a new payment plan. For the most part, the process is that the lender suggests a new loan with an accumulation of all new fees based on the current balance leading to a new cycle of debt that the loan holder needs to try to afford the next month.
Each state regulates the fees that will be paid when bills go unpaid and cars are repossessed. Some states impose a cap on the amount that a lender can charge, while other states give lenders free rein with late payments including other fees like storage or any charges associated with the process of repossession.
When Do They Take Possession?
When it comes time to take possession, the specifics will again vary depending on the state. Some states expect lending agents to allow loan holders to be aware of pending default in advance, while others can show up and tow the car unannounced.
For those who went into default, making a payment was already a challenge. The only fathomable way to have the car returned would potentially be to come up with the full payoff to try to reclaim it before it is sold. In most cases, the likelihood of that is nonexistent. The lender typically sells the car to recoup the loss.
Some states require agents to return any money remaining after the outstanding debts are removed. But if your car sells for less than your debt, you will still be responsible for your bills, and the cycle continues only this time there’s no car to help bring the costs down.
How Can You Stop The Horrific Debt Spiral?
Anyone who has fallen prey to the auto loan spiral of debt finds themselves more desperate than when they began the whole process not knowing how to break free. It may seem like there is nothing you can do, but the first step is to try to take control back of your financial situation.
If your current income is not substantial enough to cover your debts, obtaining a side gig might serve as a reliable solution to the problem. This additional job will be an extra source of income to cover payments as opposed to borrowing money to pay an already existing loan.
Along with a credit advisor, it is critical to create a plan for attacking not just the title loan but also any debt you’re currently under. That will help you to advance your credit score. Most importantly, in your situation, you need to develop a savings account where you can accumulate at least two months worth of bill money. Finding yourself back in the clutches of the title loan industry in an emergency is not difficult to foresee. You want to make sure that doesn’t happen.
Ensure that you keep your bills paid on or before their due date and decrease credit use, so in time bank loans with reasonable rates will be within your realm.
Check out the chart below for a simplified method on how to go about paying off your debts.
The most important thing to remember is to spend your money only on what you need and use the excess cash to pay down debt. Always try to budget what you earn and live accordingly.
Ways To Break Free From Your Car Title Loans Entirely
When a borrower has tried and failed to pay off their car title loan debt, it can feel as if there is no recourse. Fortunately, there are assistance programs that can fight on their behalf and offer strategies to pay down the debt. There are also steps that individuals need to incorporate, as mentioned previously, to try to be proactive in their own efforts.
The federal government is active in calling attention to finding solutions to what deems a crisis among the population. It is reported from the Consumer’s Protection Bureau that one out of every three borrowers will lose their vehicle when they take out a title loan.
For those fortunate to have the money to make the incredible payments, it takes a minimum of up to a year to pay a loan off that is typically supposed to term in 30 days. The government’s bottom line is to actively discourage the use of this type of financing because losing a vehicle is likely, and consequences far worse beyond that are very possible.
A wide range of not-for-profit credit counseling facilities makes their services available to consumers at basically no charge relative to their auto loans. There are safe methods for consolidating them without creating more cycles, more debt, and more stress.
Even agencies charging a minimal fee will work with every family because the goal is to help resuscitate the finances of the family walking into their office.
One option counselors may recommend is loan consolidation or even bankruptcy. Ever credit counselor will help to outline the risks and benefits for each option.
Dealing with Private Companies, Banks, Medical Providers, Credit Card Companies
Some private companies, banks, medical providers, and credit card companies will all work with debtors to assist in getting debt under control. When you have a title loan that is consuming most of your income, it’s imperative to contact all the people you do business and set up reasonable payment options to stay in good standing with them. Most companies will take some payment as opposed to no payment at all.
Also, creditors in these settings are generally very willing to work with clients as long as the bills are being paid as opposed to bankruptcy being filed, where the lender would receive nothing. And don’t forget the collection agency, make sure to negotiate with them for an amount that you can comfortably afford.
Keeping it out of the court system looks favorably on you. A debt settlement organization can assist you through this process.
As far as medical providers, in a lot of instances, they are offering medical debt consolidation to make the billing process easier for the patient. So the hospital, doctor, and any other medical fees are all put on one secure payment. If you can’t qualify for any type of charity assistance or the Medicaid program, this type of service in consolidating the medical debt is an ideal way of getting a manageable interest rate and helping you get back on track.
Federal Programs Offering Aid
The federal government encourages banking systems to provide loans with low interest to low income working families, which can be used to pay off higher ranking debs. The FDIC administers this program for anyone who has spiraled out of control using a title loan as a means to consolidate their debt. It is government-supported with a focus on helping families who may not be in the mainstream system for banking like those with poor credit scores.
Each state is different in the various programs offered. Still, every state has plans provided citizens suffering through a debt crisis a chance to get back on their feet and become productive again.
Car title loans are not the option that you want to consider when you find yourself in an emergency. It may seem like it is your only recourse when you’re face to face with desperation. But in those times, you have to take a step back. There are people out there who can make a difference for you, walk you through your emergency, and help you get back on your feet.