How to Get Out of a Title Loan
January 10, 2023
If you’re in need of fast cash, a car title loan might seem like the perfect option. Title loans can be easy to get and offer quick cash with no credit check. The catch, though, is that there is a catch – high interest rates and expensive monthly payments can add up quickly putting you back in a precarious financial situation. If you've gone from, "Are title loans worth it?" to "Get me out of here!" our guide can provide you with options on how to potentially get out of a title loan.
What is a car title loan?
A vehicle title loan is a short-term, high-interest loan that uses the borrower's car title as collateral. It is a type of secured loan where the lender holds the title to the borrower's vehicle until the loan is fully repaid. If the borrower defaults on the loan or fails to make payments, the lender has the right to repossess the vehicle and sell it to recover the loan amount. These loans are typically aimed at people with poor credit or those in need of immediate cash, but they often come with high interest rates and fees, making them a risky financial option. You can get better terms, for example, while also building your credit through responsible usage and on-time payments with a Yendo vehicle secured credit card.
Know the terms before you get a title loan.
The terms of an auto title loan are not negotiable – it’s a contract, after all. You might want to take a calculated risk, but that doesn’t mean you can’t know what you’re getting into. Some key factors of title loans include:
- Loan amount – The amount you can borrow varies based on factors like your income and your car’s value. Generally, the higher your car’s value, the more you can borrow.
- Interest rates – Some states cap interest rates at 36%, but others go as high as 400%. Before you apply, check the state’s rate cap to see where you stand.
- Types of title loan – You’ll have a few options: Payday loans, Installment loans, or Line of credit. Payday loans are due all at once, like traditional payday loans. Installment loans are due in monthly payments, and line of credit title loans let you borrow and repay as needed.
Ways to get out of a title loan
Repay your loan ASAP.
Title loans are high-interest loans that can lead to an even larger debt for borrowers if you don’t pay them off as soon as possible. Generally, your lender will want their money back as soon as they can get it - make sure to thoroughly read the terms of the loan. You might face harassment, and potentially lose your car through repossession if you don’t pay.
To the best of your ability, try to repay your title loan as quickly as possible. If you have other debts, try to pay those off first, so you have more cash to put towards your title loan. Whatever you can do to repay your title loan faster will help reduce the amount you owe – and lower your interest rate.
Also, keep in mind there are options to refinance your title loan by getting another title loan. For the reasons stated here, this can still be a bad option given the rates charged by title loan companies.
Consolidate with a debt consolidation service.
A debt consolidation service can help you get out from under your title loan debt. It is the process of combining multiple debts, such as credit card balances, personal loans, or medical bills, into a single loan or payment plan.
The goal of debt consolidation is to simplify debt management and potentially lower the overall interest rate or monthly payment - it essentially allows you to refinance at a lower rate if approved. This can be achieved through various methods, including taking out a debt consolidation loan, transferring balances to a low-interest credit card, or enrolling in a debt management program. Debt consolidation can help individuals regain control of their finances, improve their credit score, and ultimately become debt-free.
Companies that accept balance transfers, like Yendo, use your existing debt to get you a lower interest rate and put one payment in the place of several. This is a great option if you have an auto title loan debt and other high-interest unsecured debt, too.
Find a better way to borrow money.
Title loans are a bad way to borrow money. They’re short term, expensive, and come with significant risk. Taking an auto title loan is basically a bet that you can get rid of your car as fast as possible, and then replace it with something new. These inherit risks, however, and they’re not worth it even if you do manage to pay off the loan in a timely fashion.
If you need cash, try to find a different method, refinancing other debt, for example, can help alleviate overall debt issues. Many customers with a bad credit history are turning to Yendo. Yendo is a credit card that is based on your vehicle’s value instead of your credit score. Yendo helps build your credit score, has an affordable APR at 24.99%, and does not check your credit score for pre-approval.
Change your car’s title.
Many title loans are based off your car’s value. If you have bad credit and need a car, but can’t get a loan, consider buying a car that’s less than $2,000 and paying in cash. Make sure it’s insured and safe, but there’s no reason you can’t drive an inexpensive car as long as you have the money to buy it in full. Your car’s vehicle title will be in your name, and any title loan company will have no claim to it. You’ll render the title loan useless. This method is risky, but it may be worth it if you desperately need a car but can’t get a loan.
Take legal action against the lender.
If you take out a title loan and don’t think you’ll be able to pay it off, you can try to get it discharged in court. If you live in a jurisdiction that allows lawsuits like this, you’ll need to go to court and sue the title loan company. The exact action you take will vary from state to state, but generally you want to challenge the contract or the ability of the lender to collect on the loan if you can prove undue hardship. If you win, the title loan will be discharged, and you’ll have no further obligation. This is an extreme move and should be done with care and with the help of an attorney – but if you feel a title loan company has treated you unfairly, this may be an option.
Get a personal loan instead.
A personal loan isn’t as quick as a title loan, but it’s a better choice. Title loans often require no credit check and no collateral. Personal loans, on the other hand, require a credit check and collateral. If you have bad credit and need quick cash for repairs to your home or car, though, a personal loan might be a better option than a title loan. Personal loan rates are generally lower than title loan rates, and you’ll usually have a set payment plan and time frame within which to repay the loan.
Obtaining a personal loan through a credit union can be a viable alternative to traditional banks, sometimes offering lower interest rates and personalized service. As member-owned, not-for-profit institutions, credit unions generally prioritize their members' best interests, ensuring that loan terms and conditions are more favorable and affordable. They often provide flexible repayment options and faster loan approvals for those with diverse credit backgrounds.
A title loan is one of the worst types of loans you can take out and you might find yourself in a position where you're thinking, "I can't pay my title loan". It’s quick and easy to get, but carries high interest rates. You may be able to get it without collateral and with no credit check, but you’ll pay for those benefits in interest and debt. To get out of a car title loan, consider a debt consolidation service, finding a better way to borrow money, or applying for the Yendo vehicle secured credit card that has no credit check and can also help you build credit by reporting to the credit bureaus. The card also allow you to do a cash advance if that is an option you’re considering.
Yendo is the first credit card that's backed by the value of your car. The card can provide access to credit for those who might not be able to qualify for other credit cards. It's a real credit card, powered by Mastercard, that provides credit limits from $450 - $10,000, depending on the value of your car. So, rather than re-applying for loans, for example, you can access funds an ongoing basis and, with responsible usage like on-time payments, build your credit too.
Features & benefits
- Credit limit - access up to $10k in credit
- App - the Yendo app lets you manage your account, wherever you are
- Virtual card - access a portion of your credit limit prior to getting your physical card in the mail with the Yendo virtual card. Use your virtual card in addition to your physical card
- Cash advances - ability to do cash advances on your card if you need to access money quickly
- Access to revolving credit – you’ll have a revolving line of credit that opens up as you make payments
- Credit reporting – all your account activity will be reported to the credit bureaus, giving you the perfect opportunity to build your credit
If you'd like to do more research on car title loans, for example if you're a military service member the Military Lending Act (MLA) is relevant to your situation, browse the set of links we've provided below. We understand that a title loan might seem like an ideal solution, however given their high interest rates, they can hurt your financial situation. Here are links to help you do even more research to help you get the financial help you need:
- What to know about payday and car title loans (FTC website)
- What are my rights under the Military Lending Act (MLA)? (Consumer Financial Protection Bureau CFPB website)
- CFPB research on car seizures and title loans (CFPB website)
- CFPB Orders TitleMax to Pay a $10 Million Penalty for Unlawful Title Loans and Overcharging Military Families