Car title loans are popular among borrowers who need quick access to cash but may not qualify for more traditional forms of financing.
While these loans can be helpful if you need cash quickly, it’s important to be aware of the consequences of defaulting on your car title loan. Here are five things that can happen if you fail to make your payments on time.
1. Loss of Collateral
The most obvious consequence of defaulting on a car title loan is the loss of your collateral—in this case, your vehicle. When you take out a title loan, you’re putting up your vehicle as collateral in exchange for the money you borrow.
If you’re unable to repay the loan on time and in full, then the lender has the right to repossess your vehicle and sell it to pay off the debt. In some cases, you may still be liable for any remaining balance after the sale is complete. So, before you consider title loans NC, make sure you have a plan in place for repayment.
2. Damage to Your Credit Score
Defaulting on a car title loan will negatively impact your credit score since it will be reported as an unpaid debt by the lender.
This means that other lenders or creditors may be less likely to approve future applications for credit or loans due to your poor payment history. This can make it difficult for you to access financing in the future and may even affect things like rental applications or job opportunities that require a credit check.
3. Collection Calls and Harassment
If you default on a car title loan, then it’s likely that the lender will take steps to collect payment from you, such as sending collection letters or making phone calls demanding payment.
Unfortunately, some lenders may resort to harassing tactics like making multiple calls daily or using threatening language—which is illegal under federal law—to pressure borrowers into paying back what they owe. To avoid this situation, stay on top of your payments and pay on time.
4. Legal Action
If all other attempts at collecting payment fail, lenders may pursue legal action against you to recoup their losses from the unpaid loan amount plus interest and fees incurred during the repayment period.
This could result in costly fines and even jail time, depending on how far along proceedings go before a resolution is reached between both parties involved in the agreement. By the time legal action is taken, it’s already too late to avoid the consequences.
5. Higher Interest Rates & Fees
Defaulting on a car title loan can also lead to higher interest rates and fees if you ever decide to take out another title loan with the same lender in the future.
Since they’ll view you as a high-risk borrower due to your past payment history with them, they’ll often charge you more or even decline your application altogether. You want to reduce interest rates on loans you borrow, so it’s important to avoid defaulting on your car title loan if you can.
Ensure You’re Financially Prepared
Defaulting on a car title loan can be an expensive and difficult experience, so it’s important to make sure you are financially prepared to take on the responsibility before signing any agreements.
If you need cash quickly but aren’t sure that you can afford to repay the loan in full on time, then it might be a better option to explore other financing options instead.
