What If You Default On Your Car Title Loan?Fast Action Finance
There has been an increase in the interest in car title loans in the recent past, mostly owing to the fact that many people realize that they are very easy to apply for. All you need is proof that you own a car, and that itâ€™s in good standing (i.e. that there are no other loans associated with the car) in order for you to qualify for it. When you are thinking of applying for one, one of the important things you need to be very clear about is the issue of defaulting. Understanding who is most likely to default as well as what impact this might have is important, since it then determines how you approach the application process.
What are the statistics?
One of the major reasons why some people oppose the use of car title loans is the notion that people who do so might end up losing their cars and their jobs. However, a study done in the United States in three states found that only 10% of people who had ever applied for such loans ended up having their cars repossessed. This means that realistically, the chances of you losing your car after applying for such a loan is around 1 in 10. Of course, there are many things you can do to mitigate this risk, in which case this probability will rapidly shrink.
When are you deemed to have defaulted?
The universal agreement of a default is missing one or more payments. However, there are other technical details that might come into play in determining when you will be deemed to have defaulted. The best way to figure this out would be to go through your agreement when signing up for the loan. For instance, there are some lenders who might label you as a defaulter if you miss one payment, while others might do so if you miss multiple payments. Some lenders may also give you a grace period after which you may be classified as a defaulter if you do not pay. For instance, a lender may require you to make the monthly payments between the first and the fifth of every month. Once this period elapses, you might be labelled as a defaulter, or may be given a few more days to get the money.
What happens next?
Once you have defaulted according to the lenderâ€™s terms, they are legally allowed to repossess your car. What happens after this once again depends on the type of lender you borrowed from, and the agreement you signed with them. For instance, there are some that may immediately sell your car or use it in other ways to raise money, which means that you may not get a chance of recovering it. However, others may give you even more time to come up with the money after repossessing the car. During this time, you may be subject to a number of fines. Paying such fines as well as the outstanding amount might result in you getting the car back.
This then means that in order to fully understand what happens if you default, you canâ€™t take anything for granted. You will always need to go through the lenderâ€™s terms and conditions to get a good idea of what to expect.
How can you avoid this?
You donâ€™t need to be scared of applying for these types of loans on account of the risk and consequences of defaulting. There is a lot you can do to reduce this risk including:
â€˘ Pick a lender with friendly terms: As has been shown above, there are different ways that lenders will treat defaulters. Always try to get your car title loan from a firm that has a likelihood of being more lenient just in case. In addition to that, you should also consider getting the loan from a lender who can allow you to renegotiate terms, such as when you find it particularly difficult to service the loan after some time.
â€˘ Underestimate your capabilities: When applying for the loan, you will need to determine how much you can pay back every month so that you can use this to negotiate terms such as how much to pay per month. By underestimating the amount you can afford each month, you will end up having a payment plan that will be easy to handle, which means that the possibility of defaulting will be minimal.
â€˘ Plan for a rainy day: In case you need to handle an emergency during the loan repayment period, how will you handle the finances? Thinking about a worst case scenario and then actually preparing for it will go a long way in reducing the risk of defaulting.
In summary, the risk of default should not be a major reason for you to avoid car title loans. As long as you clearly understand the terms of the loan and also get a loan that you can service without straining too much, this risk will be practically negligible.