If you need cash, a title loan might seem like a good idea. So when you take out the loan, you’re likely to be excited about the money and not think much about the possible consequences.
Yet, like all other forms of debt, taking out a title loan has unintended and undesirable consequences. The question then is this: what happens if you don’t pay the title loan back?
Keep reading to find out what’ll happen to you when you fail to cough up the cash.
What Happens if You Don’t Pay a Title Loan Back?
If you don’t pay a title loan back, the lender can put a lien on your vehicle. This means they can take your car if you don’t make your payments. This can hurt your credit score, making it harder to get a loan in the future.
The lender may also report the delinquent loan to the credit bureaus, which could negatively impact your credit score as well.
A bad credit score can make your life difficult in several ways. It can even delay retirement by costing you more money in the long run. But improving your credit score is only possible if you understand just how much your credit score impacts your life.
If you have a bad credit score, and you are renting, you may have a hard time looking for an apartment in the future. According to Experian, a credit score of 620 is often the minimum you need to qualify for an apartment.
The Harsh Reality of Repossession
If you don’t pay back a title loan, the lender can repossess your car. This means they can take back your vehicle back and sell it, using the money from the sale to pay off your loan. If you don’t have a vehicle, you may be unable to get to work and earn a living. You may also be charged late fees and additional interest, which can make it difficult to pay off the loan.
If the lender sells your car for less than what you owe on the loan, you will be responsible for paying the difference.
The Cycle of Debt
The cycle of debt is when you can’t pay your debts, so you incur more debt to try to pay off the original debt. This is because you may have to take out another loan to pay off the first one, and then you may end up with even more debt.
This can be a difficult cycle to break out of, and it can be very expensive. You may end up paying a lot of money in fees and interest, and you may end up losing your car. If you’re struggling to pay back a title loan, it’s important to check on some title loan tips or talk to your lender and try to find a way to make payments that work for you.
The first step to getting out of the debt cycle trap is acknowledging that you have too much debt. You just need to take a realistic view of the situation so you can start taking action.
If you have several outstanding debts, you can also consider taking out a debt consolidation loan from a bank or credit union and paying off all of them.
Once you recognize your need to get out of debt, you can start working on solutions.
The Risks of Falling Behind on Payments
Title loans are appealing because you can arrange the loan quickly. Also, the lender will not check your borrower’s credit history so you can receive the title loan regardless of your credit score.
Motorcycle title pawns, which is an example of a title loan, are ideal for those who may need a sum of money quickly and a way to cover an emergency financial problem, such as hospitalization, etc.
Title loans have to be quick, usually within 30 days or less after getting the loan. If you can’t repay the loan by then, you can roll it over, the next month but you’ll be charged another monthly fee which will happen each time you roll it over.
Also, if you are absent to consent to a headline mortgage, you should be versed in the risks before you start. Headline lenders are not regulated by the government and may sue you or garnish your wages if you don’t repay the debt.
Some lenders may also employ aggressive collection tactics, such as making threatening phone calls or showing up at your home or work.
Possible Legal Implications
If you don’t have a vehicle, the lender may try to collect the debt from you through other means, including suing you. If the lender sues you and gets a judgment against you, the lender may be able to garnish your wages or put a lien on your property.
If the lender wins the lawsuit, you may be required to pay the lender the amount of the judgment, plus court costs and interest. You may also be responsible for the lender’s attorney fees.
Tips for Avoiding Default on a Title Loan
To avoid defaulting on a title loan, be sure to make your payments on time.
You can also pay off the loan early if you have the extra money. Be sure to keep the loan agreement and all paperwork in a safe place so you can refer to it if you have any questions or clarifications.
If you’re worried about defaulting, consider talking to your lender about your options. They may be able to work with you to create a payment plan that fits your budget.
Contact Your Lender as Soon as Possible
It is essential that you are aware of what happens if you don’t pay a title loan back. If you’re having trouble making payments, contact your lender immediately to discuss your options.
Without doing so, this can lead to some problems, including damage to your credit score, the loss of your transportation, and potential legal issues.
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