How to Get Out of a Car Title Loan

man holding one hand on face in distress while driving a car

If you have a car title loan, you're probably paying astronomical fees and interest charges, and risk losing your car if you fall behind. Instead of taking that gamble, consider your options for getting out of the loan sooner rather than later.

Even if your credit isn't great, you may be able to get out of a title loan by working directly with your lender, looking for new financing options or by getting help from a legitimate third party.

What Is a Title Loan?

Title loans may seem appealing if you have no credit or bad credit, as they often have low credit requirements, come with short repayment terms and they tend to be available for smaller amounts than other loans. You may be able to find title loans as small as $100, and up to $10,000.

But title loans tend to be outrageously expensive, with annual percentage rates (APR) around 300%. They're risky, too, since you have to use your car title as collateral for the loan. That means if you fall behind on your payment, your vehicle could be repossessed, potentially leaving you without a way to get to work or drive your kids to school. That's one reason these loans aren't legal in most states.

Ways to Get Out of a Title Loan

If you have a title loan, you may have a number of options for safely paying off the balance and getting your title back. Here are some alternatives to consider:

  • Pay off your balance early. If there's a way you can come up with the cash early, try paying off the full balance as quickly as you can. Taking on a temporary side job, working overtime or borrowing from a family member could help you save money and get the vehicle's title back in your hands.
  • Negotiate your loan terms. There's no guarantee a lender will negotiate with you, but it doesn't hurt to ask. If you need reduced payments or a lower APR, ask for something that fits your budget and make sure to get the agreement in writing.
  • Refinance. You may be able to pay off your balance by taking out a refinance loan. If your credit has improved since you took out your title loan, you're that much more likely to qualify for a new loan with lower rates, fees, and no collateral required. Using Experian Boost®ø could help you instantly raise the scores based on your Experian credit report before you shop around.
  • Try debt management. If you need help with your overall debt situation, a nonprofit agency may be able to negotiate with your creditors and get you on a Debt Management Program that fits your budget. Note that debt management is very different from debt settlement. Debt settlement should be avoided since it can result in significant damage to your credit.

Can Title Loans Impact Your Credit?

Title loans may not have any impact on your credit at all, since lenders don't typically run your credit information or report your payments to the credit bureaus. That means on-time payments toward your title loan balance won't help you build credit or improve your credit scores.

If you fall behind on your title loan, however, you can still face major consequences. Even if it's not reported to your credit file, you'll likely be charged late fees and your car could be repossessed and sold.

Once you're behind on payments, the lender may offer to "roll over" your debt into a new loan as a solution, but this means paying more fees and interest, which makes it harder and harder to repay your full balance.

Title Loan Protections for Military Members

Predatory lenders, including car title lenders, often target their loans products at military service members. But if you're an active service member, you and certain members of your family could have special legal protections as a result of the Military Lending Act (MLA).

The MLA restricts high-risk terms for certain kinds of financing, including title loans. If your lender has violated the MLA, your title loan could be rendered void. Here are some prohibited practices to look out for:

  • A lender cannot require access to your bank account.
  • You can't be required to pay your title loan by check.
  • You can't be charged more than 36% APR.

Steer Clear of Predatory Lenders

Like paydays loans, title loans may seem like one of the only ways to get cash when you have credit problems. But even if you're in a pinch, it's important to explore all of your options before agreeing to put your car on the line.

It's still possible to get a traditional personal loan even if you have bad credit. As more alternatives to bank and credit unions continue to enter the marketplace, your options are growing year by year. These alternatives include online lenders and peer-to-peer lending platforms, which often are more accepting of those with lower credit scores and have many advantages over auto title loans.

Instead of relying mainly on your credit report, scores and income information to make a lending decision, lenders may use alternative credit data to help determine your creditworthiness, which could help you qualify for better terms or a lower interest rate.

To avoid relying on predatory loans in the future, start working on your credit today. Along with paying bills on time and keeping your credit card balances low, you can use free credit monitoring to get familiar with what's in your credit file. Monitoring your report and score can help you identify areas for improvement and start building toward better credit right away.

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