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BY JUSTIN PRITCHARD
Title loans are like the proverbial comfortable bed: easy to get into, but something you need to eventually get out of. They’re really expensive, and they frequently stick around a lot longer than you originally expected (so you continue paying those costs and rolling the loan over month after month). They’re also risky – you can potentially lose your car. So, how can you get rid of a title loan? You’ve got several options.
The Ideal Solution
The simplest route is to pay off your loan, but that’s easier said than done. If you had the money, you wouldn’t have gotten a loan in the first place. If you’ve since come into some cash and are able to repay, contact your lender and ask for payoff instructions. Don’t be surprised if it’s difficult. Many lenders will gladly accept your payment, but some title lenders drag their feet and prefer that you continue paying interest.
Swap out the Car
If you don’t have the funds, you can always sell the car to generate cash. Selling is difficult when you don’t have a clean title, but it can be done and it happens all the time. Downgrading to a more modest (but safe) vehicle can save you hundreds or thousands in interest and fees, and free up cash flow every month.
Refinance or Consolidate
Another way to get rid of your title loan is to replace it with a different loan. This doesn’t solve the main problem (that you’re short on cash), but it can stop the bleeding.
A fixed rate loan from a bank, credit union, or online lender will often be less expensive than rolling your title loan over month after month. Even a convenience check from your credit card can reduce your costs (as long as you are certain you’ll pay it off before any promotions end), plus you can get your title back.
If you’re having trouble getting a replacement loan, visit small local banks and credit unions, where you have a better chance of getting approved. Online peer-to-peer lenders are also worth a look. If all else fails, somebody close to you might be willing to co-sign and help you get approved – just make sure they are willing and able to take that risk.
Your existing lender might be willing to work with you, so it’s also worth trying to negotiate. Offer what you can afford to pay and see if the lender accepts. Especially when your finances are spinning out of control, your lender might prefer to get something from you before you become completely insolvent. Even if things aren’t dire, you might find that your lender has options, such as a lower interest rate or other adjustments that can lower your payments.
If your lender agrees to take less than you owe, your credit will suffer (you’ve settled for less than the previously agreed upon amount). You’ll have lower credit scores for several years, and borrowing will be more difficult and expensive for you during that time.
Another option is to simply stop paying – but this is not your best option. Defaulting on a loan will damage your credit, and your lender will eventually repossess the car (so you’ll have bad credit, no car, and you’ll probably still owe money).
Offering to voluntarily surrender your vehicle can improve the situation slightly, but you’ll still see lower credit scores. On the bright side, you’ll be done with monthly payments – and that might be enough to put you on a better path.
The Devil is always in the details, so speak with a local attorney and discuss your personal situation – there might be important details that are not considered in this article. In many cases, bankruptcy offers limited relief from auto title loans. It can help you avoid personal liability for deficiency judgments, but the car often continues to serve as collateral for the loan and can be taken if you fail to repay.
Avoiding Title Loans
Your best bet is to avoid title loans in the first place. Once you’ve got this behind you, get yourself on solid financial ground for the next financial hardship.
Build up an emergency savings fund of three to six months’ worth of expenses (or preferably more), and improve your credit so that you have more options when you need to borrow.
The Military Lending Act provides additional protection for service members and certain dependents. Read more about that protection, or visit Military OneSource to speak with a financial expert.
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