A title loan is an example of a secured cash advance. If you are ever in need of a short-term cash to solve some pressing needs, you can easily liquidate a part of your equity in your car to meet that need. You will be able to do this through your auto lender if you have an active loan. Otherwise, most traditional and alternative lenders will accept your car title as collateral on this cash advance and if you default, your car may be repossessed as part of many other penalties.
This article explains the consequence of not paying your title loan.
Repossession of your car
The very first thing that may happen to you should you default on your title loan is that your car will be repossessed. You will likely be confronted with a situation where your car is forcefully seized from you when you least expect it. These repossession companies can show up anywhere to repossess your car, be it at your workplace, or at a venue where you are having an important meeting with a client. It does not matter the occasion, they will show up there to effect the repossession. This can be very embarrassing to you and depending on the terms of your contract, the lender may not have to notify you prior to sending a repossession agent to seize your car.
When you default on your title loan, as a result, your vehicle is repossessed. This repossession will be extremely damaging to your credit score. Although some title loans do not require a credit check, defaulting on your title loan may still affect your score. A default can be there for as long as 15 years. Because of this default, getting a new car loan will be difficult for you as traditional lenders will not be so keen to lending to you. You will likely have to deal with an alternative lender.
The best way of avoiding default on your title loan is proper planning. It is advisable you plan for your debt as you would, for any other expenses. Your total debt payments including that of credit cards, rent, student loans and other loans you might have taken should not exceed 50 percent of your monthly income. Even if you have mortgage, you should ensure that no more than 30 percent of your income is devoted to paying it off.
This excellent tool will let you know on what debt level you are and how much additional debt you can reasonable afford to take on. Before you decide to take additional debt, even if it is within your budget, always ensure to save up three months of payments upfront in an emergency fund. With this emergency fund, if any unforeseen situation rears its head, for example, you happen to lose your job, you can still continue to make payments for your debt while seeking solution with your lender or trying to get another job.
Opting for voluntary Repossession
In some circumstances, repossession is inevitable. Such as when you lose your job and cannot immediately find a new employment. If you have contacted your title loan lender and find out that refinancing the loan is not an option, voluntary surrendering the car can help you out by saving you from some of the negative penalties. You can do this by making an arrangement with your lender as regards when and where to drop off the car. With this, you will be release from any further obligation toward the debt and you will not see the repossession on your credit score.