Almost every individual has experienced a situation that required him to come up with cash he simply did not possess. If you find yourself facing a limited cash flow, title pawn establishments may seem like the answer to your financial woes. After you take the plunge and sign over your car's title, however, the title loan company begins charging you interest on the loan. Like payday loans, car title loans come with exorbitant interest rates that only increase over time -- leaving you facing a steadily growing debt. While high payments and little to no reduction in the loan's principle may leave you wanting to simply walk away from your financial obligation, you have options to legally get out of the loan and recover your vehicle's title.
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Pay more than the principle you owe on your loan. Given the high interest rates that car title loans carry, its possible to make each payment in full and on time and yet barely touch the loan's principle. As the loan's principle decreases, so do the interest charges. Eventually, you will pay off the loan in full and recover your car's title.
Take out a personal loan from your bank or credit union for enough money to cover the title loan's remaining balance and pay off the loan in one lump sum. While using one loan to pay another isn't always a wise financial strategy, bank loans often carry much lower rates than title loans. Thus, you can pay off the bank loan over time without paying even a fraction of the interest charges you would have paid had you chosen to make regularly scheduled payments on your title loan until the debt was paid off.
File Chapter 13 bankruptcy. When you file bankruptcy under Chapter 13, the court works with lenders and creditors to provide you with relief. By law, the bankruptcy trustee can reset your title loan's interest rate to as low as 5.25 per cent while simultaneously reducing the total amount you owe.
Turn in your car to the title loan lender through a voluntary repossession. Once the lender has your vehicle in its possession, it will usually stop pursuing you for payment. Instead, it sells the car at an auto auction and applies any proceeds generated from the sale to the remainder of your debt.
Call your lender and ask for a settlement. Like all creditors, title loan lenders do not have to offer you a settlement if you cannot pay the full balance you owe. Each title pawn establishment, however, is different. If you can prove that you are struggling financially and can not keep up with your payments, your lender may reduce your total balance -- making your loan payments less of a burden.
Tips and warnings
- If you want to take out a personal loan to cover your title loan but poor credit stands in the way, consider asking a loved one with good credit to cosign for you.
- Only Chapter 13 bankruptcy can help you with a title loan. Because your title loan lender places a lien on your vehicle until you pay off the debt and Chapter 7 bankruptcy does not clear liens, Chapter 7 bankruptcy won't help you escape your payments.
- Turning over your car to the title loan lender may prevent you from being responsible for the remainder of the debt, but depending on the value of the vehicle and how much you owe your lender, the sale may not generate enough money to cover the full amount you owe. Should this occur, you are still legally responsible for paying the difference.
- Title loan lenders have the option to take you to court rather than repossess your car. If the court awards the lender a judgment, it can use the judgment to place a lien on real estate you own or garnish your wages and bank accounts.
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- Iowa Department of Justice -- Office of the Attorney General: Avoid Car-Title Loans; Tom Miller
- O'S teen Law Firm: Title Loans; Lee O'S teen; 2009
- Federal Trade Commission: Vehicle Repossession -- Understanding the Rules of the Road; November, 2008
- Consumer Federation of America: CFA Car Title Loan Store and Online Survey; Jean Ann Fox et. al; November 2005
- Lawyers.com: Creditors' Legal Rights; William Fischer; 2010