How To Get Out of a Car Title Loan Without Losing Your Car

Car title loans offer quick cash by using your car as collateral. But their high interest rates and short repayment terms create serious financial strain. You face a real risk of car repossession.

If you’re struggling with a title loan, you have options. You can pay off the loan using creative strategies. You can refinance with a personal loan or payday alternative loan. You can negotiate new terms with your lender.

Credit counseling can provide guidance. Bankruptcy might offer a solution. Chapter 7 bankruptcy may discharge the loan but often requires giving up the car. Chapter 13 can help you keep your vehicle through reorganized payments.

Understanding your rights helps you make the best decision for your situation.

What Is a Car Title Loan?

A car title loan is a short-term secured loan. Your vehicle’s title serves as collateral.

Title loans work like payday loans. They provide fast cash for bills or emergencies. These loans base approval on your vehicle’s value, not your credit score. People with bad credit or no credit find them appealing when they need money quickly.

Title loans are extremely quick to obtain. You can drive to a store and leave with cash in 15 to 45 minutes. Rolling over a previous title loan takes even less time.

About half of all U.S. states prohibit these loans. The reason? Predatory lending practices are common.

Who Qualifies for Car Title Loans?

You must own your vehicle outright or owe very little on it. The title cannot have any liens. Most lenders don’t run credit checks. But they must see your vehicle in person.

You’ll need to provide your photo ID. You’ll also need proof of auto insurance and sometimes proof of income. The lender keeps your vehicle’s title until you pay off the loan, interest, and fees.

What Are the Loan Terms Like?

In states that allow car title loans, terms typically last 30 days. At the end, you owe a balloon payment of interest and principal. Repayment terms vary by state. They can range from 15 days to over a year.

Loan amounts usually range between $100 and $10,000. The amount is typically capped at 25% to 50% of your vehicle’s value.

What’s the Interest Rate for Title Loans?

Car title loans carry very high interest rates. Rates can reach 25% or more. This rate differs from the annual percentage rate.

Title loans have short terms, often only 15-30 days. To calculate the APR, multiply the interest rate over a year. For example, an $800 loan at 25% interest over 30 days equals 300% APR. That’s 25% x 12 months.

This extraordinarily high APR is normal for title loans. If you can’t repay before the term ends, rolling over creates a new loan. Each rollover adds more interest and fees. You get trapped in a cycle of debt.

Can Your Car Be Repossessed if You Don’t Pay?

Yes. If you can’t pay according to your loan agreement, the lender can repossess and sell your vehicle.

State law determines your redemption rights before a sale. It also determines how and when the lender can sell your vehicle. You may be pursued in court for any deficiency balance left after the sale.

State law also determines whether the lender must return surplus money. If your vehicle sells for more than you owe, you might get the difference.

Car title loans get expensive very quickly. Rolling over into new loans makes repayment nearly impossible. Your risk of losing your car to repossession increases dramatically. The Consumer Financial Protection Bureau found that 1 out of 5 title loan sequences results in vehicle repossession.

How To Get Out of an Auto Title Loan Without Losing Your Car

Avoiding car title loans completely is best. If you’re already in one, you can try these strategies:

• Pay off the loan using creative methods
• Apply for a personal loan or traditional auto loan
• Renegotiate the terms with your lender
• Seek help from an accredited credit counselor
• Know your rights if you’re a servicemember

Pay Off the Loan

Paying off the balance as quickly as possible is ideal. But you’re short on cash, which is why you took the loan. Here are ways to get the money:

• Sell your personal property or valuables: Selling some possessions can raise necessary cash. Use websites or social media to sell items. Or have a traditional garage sale.
• Get a credit card cash advance: Cash advances carry high interest. You’ll probably pay a 5% cash advance fee too. Even with these costs, a credit card cash advance beats a car title loan.
• Ask a family member or employer for a loan: Request financial help from family or friends. You could also request a pay advance from your employer. Be clear about repayment terms to protect the relationship.

Apply for a Personal Loan or Traditional Auto Loan

You may qualify for a personal unsecured loan or auto loan from a traditional lender. Banks or credit unions can provide funds to pay off your title loan.

If you have bad credit, consider applying through a small community bank or credit union. Eligibility requirements are often more relaxed at smaller institutions. Ask a family member with good credit to cosign. A cosigner can help you get approved or secure better terms.

Many online lenders offer bank loans or peer-to-peer loans. Some sites tell you upfront if your credit score qualifies. Even if a personal or car loan has high interest, the APR and terms will be easier to handle. Monthly payments are easier to budget for than a title loan’s balloon payment.

Apply for a Payday Alternative Loan

Some federal credit unions offer payday alternative loans. These were created as an alternative to dangerous payday loan terms. PALs range from $200 to $1,000 with terms between one and six months. The maximum interest rate is 28%.

You must be a credit union member for at least one month. Limits exist on how frequently you can take out a PAL.

Negotiate With the Lender

If you can’t pay off a title loan immediately, try renegotiating your loan terms. Your chances of success may be small, but asking doesn’t hurt. If you can pay part of the loan, try negotiating a debt settlement agreement.

Don’t ignore or avoid your lender if you’ve missed payments. That will almost certainly lead to repossession of your vehicle.

Seek Help from a Credit Counselor

If you can’t adjust your terms or refinance, our partner Cambridge Credit Counseling can help you explore debt-relief options. Nonprofit credit counseling agencies employ counselors who negotiate with your lender. They create a debt management plan to address your overall financial situation.

Participating in a debt management plan shouldn’t directly impact your credit score. It may indirectly affect your score by reducing available credit. In the long run, making regular payments through a plan improves your credit.

If You’re a Servicemember, Know Your Rights

Title lenders often target military servicemembers. If you’re an active-duty servicemember, the Military Lending Act offers special legal protections. These protections extend to your spouse and certain dependents. The MLA restricts terms for vehicle title loans, payday loans, and other high-risk products.

The MLA prevents a lender from:

• Requiring access to your bank account
• Requiring you to pay by check
• Charging you more than 36% APR
• Requiring you to waive certain legal rights
• Requiring you to create a voluntary military allotment
• Charging you a prepayment penalty

Creditors can refuse to give you a loan if you’re an active servicemember and the loan violates the MLA. If you already have a high-APR title loan, the MLA could render your loan void. You would keep the money without paying it back.

The MLA does not cover credit secured by property being purchased. Examples include loans to buy a home, motor vehicle, or personal property.

Can Bankruptcy Erase Title Loans?

If you’re overwhelmed by a car title loan, filing for bankruptcy may offer a way out. Bankruptcy helps people erase or restructure certain debts when they can’t afford payments. Whether bankruptcy helps depends on which type you file: Chapter 7 or Chapter 13.

Chapter 7 and Title Loans

Chapter 7 bankruptcy, often called liquidation bankruptcy, can eliminate many types of unsecured debt. Examples include credit card balances and medical bills. However, a car title loan is a secured debt. The loan is tied to your vehicle. The lender has the legal right to repossess your car if you don’t repay.

You get the benefit of the automatic stay once you file your bankruptcy case. The automatic stay immediately stops collection efforts, including repossession. The stay is only temporary. But if you plan to file bankruptcy anyway, it buys you much-needed time to address the title loan.

In Chapter 7, you may discharge your obligation to repay the loan. But you typically won’t keep the car unless you pay off the balance or reach an agreement. Sometimes, people can negotiate a redemption to keep their car. Redemption involves paying the lender the current market value in a lump sum. This is often less than the loan balance. Alternatively, you may reaffirm the loan. You agree to keep paying under the same or modified terms.

Chapter 13 and Title Loans

Chapter 13 bankruptcy works differently. Instead of wiping out debts quickly, it creates a repayment plan. You pay back what you owe over three to five years. One of the biggest benefits of Chapter 13 is keeping your car.

When you file for Chapter 13, an automatic stay goes into effect. The stay temporarily stops the lender from repossessing your vehicle, even if you’re behind on payments. Through the repayment plan, you may pay off the loan balance over time. Often at a lower interest rate. In some cases, you may reduce the amount you owe if the loan balance exceeds the car’s current value. This is known as a cramdown. Cramdowns can only be applied in Chapter 13.

Bankruptcy isn’t a quick fix. It’s not the right choice for everyone. It involves court fees and attorney fees, especially for Chapter 13 cases. Weigh these costs against the benefits of erasing or restructuring your debts.

If you’re considering bankruptcy to eliminate your title loan, you can speak with a bankruptcy attorney for free.

Key Takeaways

Car title loans use your vehicle as collateral to provide quick cash. Their short loan terms and high APRs make them difficult to pay back. Your risk of repossession increases significantly.

If you’re in a title loan, try to pay it off if possible. You can use an unsecured personal loan, a credit card cash advance, or help from family or your employer. Refinancing is another option. You can also negotiate with the lender or seek assistance from an accredited credit counseling agency.

Bankruptcy may provide relief through Chapter 7 or Chapter 13. Speaking with a bankruptcy attorney helps you understand your options.