It’s not necessarily hard to find affordable title loans these days. There are hundreds of options both locally and online for creditworthy applicants. You simply have to apply with a lender, wait for with a credit decision, and in doing so, you can keep driving your vehicle. It’s simple enough that most applicants can finish an application in 10-20 minutes. Most lenders will ask for your name, government-issued identification card (ID), and proof of your income source. The biggest drawback with car title loans is that most companies will require you to hand over your pink slip as collateral.
The problem is that many people struggle to make payments on their loans. When they first take out a car title loan everything is good. Once they receive the loan proceeds they have a large amount of cash and make the monthly payment on time. The problems start down the road, usually after 3-6 months of making payments. As a result, they end up defaulting on the title loan payments. This results in the question “Will I got to jail for defaulting on a title loan?” This article will answer this question according to the law, but before that, you have to understand more about online title loans.
What Do Most Lenders Require Before You’re Approved For A Loan?
With most car title loans, you have to provide some type of collateral. Instead of your proof of income, getting cash requires that you hand over a pink slip for two reasons. Your qualifications are often not based on your credit score. Like most short term loans, you can get cash once your application is approved. The most common type of this loan involves a title pawn. In other words, as a borrower, it is mandatory for you to own a vehicle. You also have to sign over ownership to an auto title lender. The company will often write the loan for up to 50% of the vehicle’s value. They will also keep the pink slip for security, in case of default.
A borrower usually has to pay within one month and the loans can range from a small amount to a very high value. If you default on the loan, your vehicle can be taken by the lender.
How Much Does a Car Title Loan Cost?
An average monthly salary over $1000 is often required by most companies. The amount you have to pay is high, often much more than what you would pay on a loan from a credit union or bank. In some cases higher loan amounts are put in place for a high dollar amount title pawn. For instance, if you applied for a car title loan worth $2,000 you will likely have to pay a tenth of the cost monthly, which is equal to $200. In case you borrow money for a year, you have to determine the annual percentage rate (APR) from the lender. This is determined by your borrowed money amount, fees, interest rate, and the period of money lending. While there are some cases where an online title loan is your best option, it’s likely that more traditional forms of borrowing will work out best in the long run.
What Happens When You Default?
In most cases, a default is often described by a borrower’s failure to repay the money that has been lent according to the terms agreed by both parties. In all cases, you need to hand over your car’s title to the lender. Otherwise, you may consider the “rolling over” as a perk for your title loan online. This takes place by paying another monthly fee, allowing you to borrow the money for another month. However, as the loan rolls over several times, the situation will end up with you not being able to pay. That’s why it’s important to compare rates and loan amounts for each online lender.
The vehicle repossession terms differ from one company to another. There are cases where immediate repossession takes place. Some states may provide a longer grace period than what we see on a national level. In situations like this, it’s important to know your legal rights. There are many state and federal laws that protect consumers from bill collectors. Start with reading up on the Fair Debt Collection Practices Act. Besides federal regulations, there are dozens of state and city specific rules. Most of these laws and ordinances will protect consumers who fall behind on car title loans.
Will You Go to Jail if You Default On Your Car Title Loan?
Many people worry about being treated unfairly by an online title loan lender once they fall behind. It happens in some places, but under the law, a lender is not allowed to make threats. Asset takeover by force, physical threats, or anything of similar measure are not allowed. The lender has to avoid running afoul of the state repossession laws.
Most importantly, you cannot be arrested for default when you borrow against your vehicle equity. You cannot face prosecution for not repaying your car title loan. The lender only has the power to take possession of your vehicle. There also needs to be a notice sent out about this action. Take note if a company threatens to take you to jail. In most cases they could be sued for violating the Fair Debt Collection Practices Act.
How to Prevent A Future Default?
Before you move forward with a car title loan, you should check out other financial resources first. It has been an ongoing myth that companies often charge their borrower’s high-interest rates. As a result, many firms have released offers with lower interest rates due to the competitive industry. Nonetheless, there are more dependable options than using your assets as collateral, such as the following:
- Savings Accounts
- Bank Loan or Credit Union
- Help From Family or Friends
- Credit Card
You could decide which of your options is best by determining the fees, APR, and payment terms. Also consider what happens in the worst case scenario. In this case that would be a repossession.
It is all about careful decision-making before taking that leap with a secured loan. Always decide based on what is best for you. After you’ve made the decision be sure to compare collection practices of all the top title loan companies. It’s important to know what will happen if the worst case scenario occurs and you default on the monthly payments!