How to Pay Off a Car Title Loan

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Ever heard of a car title loan? Over the last few years the public has learned about all kinds of financial products – from subprime mortgages to home equity loans to payday loans – that have the potential to drag someone’s finances down if they’re not careful. However, there’s one type of loan that hasn’t been publicized much and it’s one that can be quite harmful to your finances: the car title loan.

Car title loans are not as common as home equity loans or payday loans, but they can be equally damaging to your finances if you’re not careful. For example, would you pay someone $2,000 in order to borrow $900 from them? Most likely you would not. However, that’s about the same as what many title loan borrowers end up paying. Below, we’ll take a look at the reasons for car title loans, how to avoid them if possible, and what you can do to pay off a car title loan if you currently have one.

What Is a Car Title Loan?

A car title loan at first might sound like a loan you take out in order to buy a car, but that’s not actually the case. Rather, a car title loan is more similar to a home equity loan – it’s the result of someone needing quick cash and using their car as collateral to borrow money against. In most cases, the lender takes the car title (hence the name) until their loan is paid back in full. They also usually hold onto a copy of the car keys so they can easily repossess the vehicle if the loan is not paid back.

As you can imagine, the danger is that people obviously need their car, and that includes almost everyone who gets a car title loan. They still need their car to get to work, transport their family, etc. So what happens if they can’t pay back the loan and also can’t afford to lose their car? At worst, they will lose the car and have a derogatory mark added to their credit report which can make it harder to borrow money in the future.

Even in the best case scenario, if the loan is paid back, the borrower still stands to be gouged with incredibly high interest rates. A report by the Center for Responsible Lending stated that a typical borrower will pay a 300% APR on their title loan! In fact, the same report said that on average, people borrow $950 and need 10 months to pay it back, which costs them $2,140!

So how can you protect yourself from these exorbitant interest rates? Below we’ll explore how to avoid these loans and what to do if you already have them.

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How to Avoid Car Title Loans

One way to avoid these loans is to make a note in the back of your mind that says “NO WAY!” with regard to title loans of any kind. It’s a good idea to proactively decide not to use this type of loan. Chances are pretty high that you’ll see an ad for car title loans at some point in your life – and you’ll be better off if you’ve already made the decision not to go that route, no matter what financial circumstances you find yourself in.

An NBC News report found that Title Max and Loan Max are the two biggest title lending companies in the U.S. Title Max alone says it has 1,000 stores across the country, with thousands of loans being made each day. These companies also do extensive advertising on TV and on the internet, which brings in even more customers.

Instead of succumbing to an ad, be prepared with alternative means of getting through the tough financial times. For example, everyone should be saving money in an emergency fund that can be used in case of unexpected expenses like a medical procedure or car repair. At the same time, try to keep track of your credit score and do what you can to improve it so that you’ll have plenty of borrowing options if you ever need to borrow money in the future to get out of a jam.

Options for Paying Off Your Car Title Loan

But what if you already have a car title loan? Is there still hope? Well, yes. There are definitely ways to pay off your car title loan, and the best method depends on your particular situation. If you have a good credit score, you will have some good options available to you. For example, you may be able to get a consolidation loan to replace the title loan. Just be sure to work with a reputable company, including a local credit union or bank.

Another option if you have a car title loan already is to revamp your budget so you can allocate more money toward paying it off every month. Hopefully this way you could pay it off very quickly and limit the amount of interest you must pay. To revamp your budget, first make sure you’ve created a realistic budget that covers all your expenses, then start looking for ways to save more money and reduce expenses. While it may seem hard at first, you might be surprised how much you can save if you really try.

Finally, if the two options above will not work, consider downgrading your vehicle. This is obviously a complicated step to take, for various reasons. But if you’re not able to meet your monthly obligations, it might be the only choice. Let’s say you have a car that you bought new, which is now valued at around $10,000. You used the car to get a title loan for $2,000 but you can’t pay the amount back. If you can sell the car for $10,000 and buy a used vehicle for $6,000 then you would have more than enough cash to pay off the title loan and any fees or extra charges. One complication is that the lender may have the title to your car, so you’d need to communicate with them if this is the path you choose to take.

Whatever happens, stay focused on getting that car title loan paid off and try to avoid paying those exorbitant interest rates. If you have further questions for us, feel free to post them in the comments below.

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  • Lisa Kovac

    My brother got one of these and it was really unreal how much they charged him. Beware and stay clear, it is a horrible option and someone is getting filthy rich off of your misfortune!

    • http://www.twitter.com/bwfeldman Benjamin Feldman

      I’m sorry to hear that he got involved in one of these! Yeah, they are very dangerous – kind of like payday loans. If your brother ever wants to share his title loan experience with us, we’d love to post it on the blog. It could be a similar format to this one: http://blog.readyforzero.com/experience-settling-home-equity-loan-heloc/.

  • AB

    hey, im thinking about buying a car from someone but he doesnt have the title because the bank has it which is in another state and they wont send it unless his loan is paid off…. is it safe to purchase the car through a bank and wait for the title to be sent?

    • http://www.twitter.com/bwfeldman Benjamin Feldman

      Hi, that’s a tricky situation. I think the best thing to do is get in touch with the bank itself and maybe get some kind of assurance from them in writing. I don’t have a lot of experience with this specific situation, so I’d recommend doing a little more research before making a decision.

  • Emily

    I’m stuck it one and Idk what to do!!!!!!

    • http://www.twitter.com/bwfeldman Benjamin Feldman

      Hi Emily, I’m sorry to hear that. I’m sure it must be frustrating. I can only share our resource centers and our free debt planning tool:
      blog.readyforzero.com/resources/
      https://www.readyforzero.com/
      Let us know if you have any other questions. I also think it could be interesting to write a blog post about your experience – let me know if that’s something you’d be open to!

      • Emily

        Sure!!! My biggest advice is avoid tile loans is not worth it!!!!

        • http://www.twitter.com/bwfeldman Benjamin Feldman

          Okay, great. Thanks, Emily!

  • Lois

    If I can’t pay my titles loan how will it be before they get my car

    • http://www.twitter.com/bwfeldman Benjamin Feldman

      Hi Lois, it really depends on the situation. However, if you think you’ll be able to make payments again soon, you could call them and try to work out an agreement that would allow you to keep the car. Best of luck.

  • Dee

    I had submitted the info they requestec but have not done any “finalizing” or signed anything .. Can I back out of a pending title loan?

    • http://www.twitter.com/bwfeldman Benjamin Feldman

      Hi Dee, I don’t know enough about title loans to say for sure. But in general, when it comes to loans, if you have applied but not signed anything then you should not be under any obligation to them. Hope that helps!

  • Deedee

    I’ve paid on my loan for a year and then was told they were reducing the interest pymnt to 20.00 so I could pay off the loan quicker. Well , I lost my job about then , so the 20.00 pymnt was a god-send. I made three such pymnts, still looking for work (which they know) and now am told from here on out the pymnt will be 150.00 because they don’t feel that I’m trying to pay off the loan. Can they do this? What will they do if I just keep paying the 20.00 until I get a job?

    • http://www.twitter.com/bwfeldman Benjamin Feldman

      Hi Deedee, it really depends on what is written in the contract or loan agreement. In some cases, the lender may have the authority to increase your payment to $150. But it’s worth checking the paperwork though, just in case! I’m sorry you have to deal with this situation – best of luck on getting it sorted out.

  • ladydvyne

    my current siuation my loan was brought out from instaloan for 2719.73 but they still took 152.50 off my card for interest and i am no longer with them , i contact the company title max which i didnt know was a part of the company and have yet to be refunded. i spoke with the district manager who states that the 152.50 was for the prev month . i was never late and 152.50 would of been.. You may pay the interest due or the interest due plus any additional
    dollar amount over the interest to be applied to your principal. You
    will then be contracted for another 30 days.but i dont need to be contracted for 30 days because i was brought out

    • http://www.twitter.com/bwfeldman Benjamin Feldman

      Hi, I’m sorry to hear about this – it sounds very frustrating. I’m not sure I completely understand your question. You said you are being charged $152.50 that you don’t believe you owe – is that correct? If that’s the case, you should call up the lender again and maybe ask to speak with a supervisor. Tell them you paid in full already and you don’t owe anymore. Another thing you can do, if they are not helpful, is you can file a complaint with the CFPB: http://www.consumerfinance.gov/complaint/.

  • Jerry

    Do these car title loans company’s have the right to have such high interest rates???

    • http://www.twitter.com/bwfeldman Benjamin Feldman

      There are definitely laws governing this, but unfortunately in many cases the high interest rates are legal.

      • SusanQuagmire

        They are outrageously high – read my post above.

  • dee

    Hi my ex boy friend got a title loan.but then went to the dmv to get a copy.they told him that his old title is no good.and he has not paid on that title at all.

  • adam54321

    Hi There. I fear my situation is even more complex than just a title loan. When I got my first well-paying job I foolishly took out a personal loan and maxed out a credit card from the same financial instituation. To maximize the amount I could receive via the loan, I offered my paid off 2000 vehicle as collateral. I mean I was working…I would pay it back easy right? Cut to: I get laid off and suddenly I have outrageous monthly payments that I can no longer afford. The bank (to “help me out”) lumped my credit card in with my personal loan for one large monthly payment at a 15% intrest rate. They kept my car as collateral. I am working again and have been paying the loan off, but another issue has surfaced. My car is old and is falling a part (big time), and the cost to fix it is more than the car is worth. Basically it is totalled in my mind. It is worth maybe $1000 and my loan still exceeds 5K. The bank will not excuse the collateral and will not refinance the loan for me. I am stuck, needing a newer car desperately. Any advice you could shoot my way would be appreciated. This mess has affected my quality of life for far too long.

    • http://www.twitter.com/bwfeldman Benjamin Feldman

      Hi Adam, I’m sorry to hear about this situation – it must be very frustrating. If you have a good credit score, you might be able to get a new loan (consolidation or refinance) with another lender, such as a local credit union or bank. That could possibly lower your monthly payments so you could get some breathing room. Beyond that, I’m not sure what other options exist. But it’s probably worth researching to see what else is out there!

    • SusanQuagmire

      You could consider bankruptcy.

  • Lisa

    Luckily, I no longer need my vehicle. What if I just don’t pay the loan? Is there a downside? Would I risk anything other than a vehicle I don’t use anymore?

    • http://www.twitter.com/bwfeldman Benjamin Feldman

      Hi Lisa, there is always the impact on your credit score. If you were to stop paying the loan, it would cause your credit score to go down quite a bit. For more info, you can see our resource center:

      blog.readyforzero.com/resources/credit-score/

      Ultimately, you will have to decide what option is best for you financial situation. Good luck!

    • SusanQuagmire

      They would take your vehicle off the street and away from you forever.

  • SusanQuagmire

    I have to post you my story. I needed cash a year ago as I was unemployed and struggling. I was offered a $2600 title loan on my 2004 Hyundai Sonata. I was so desperate that I signed on the dotted line and every single month I paid FOUR HUNDRED DOLLARS to the PayDay loan place. Tomorrow I walk in and pay my FINAL payment after 12 months of STUPIDITY on my part to ever agreeing to this. Thankfully this is a solid, excellent car and is still running like glass but the decision to take out this loan was so stressful because there were three or four months I had to borrow the money to keep my car from being repossessed. Please people do whatever you can NOT to do what I did. I’m curious – does anyone know what documents I should get back. They have my pink slip which they should return but someone said to go straight to the DMV to have it registered back in my name only. Is there anything else I should be doing? I may want to sell this car cheap in December to my neighbor’s son and I don’t want any complications regarding the title, selling it. Thanks.

    • http://www.twitter.com/bwfeldman Benjamin Feldman

      Hi Susan, sorry to hear about that experience – it sounds very frustrating! It sounds like you are on the right track. The advice to get the vehicle registered back in your name immediately seems very wise. Other than that, I’m not sure if there is anything else you need to do. Good luck!

      • SusanQuagmire

        Thank you ; ) It was quite a lesson for someone who has never been very good with “math” (true!) At least the car runs well, still…..

  • Maria

    What happens if you’re late on your car title payment and they want to repo your car BUT there is no car for them to repo?

    • http://www.twitter.com/bwfeldman Benjamin Feldman

      Hi Maria, in that case I think they would have to just report the debt as an unpaid account to the credit bureaus. They would still want to receive the full unpaid balance from you, so they would probably try to get ahold of you and get you to pay it. If you don’t, they would probably eventually sell the account to a collections agency who will then try to get you to pay it.