What happens if I default on a car title loan?

Repo man repossessing a vehicle
Unfortunately, those who default on a car title loan often find their vehicles repossessed by their lender.

Car title loans are a type of financing available to those with bad credit and poor financial histories. Unlike bad credit cash advances though, auto title loans are usually given for longer terms and slightly better interest rates. However, in order to satisfy the demand of bad credit borrowers, auto title lenders require that a car be put up as collateral for their money.

Collateral is a lending mechanism used to secure a lender’s money. In the event a borrower defaults, the lender can hope to reclaim their money by repossessing the collateral and liquidating it for cash.

The Repossession Timeline

According to the Federal Trade Commission’s facts on vehicle repossession, rules regarding repossession are dictated by individual states. While most contracts say repossession can occur immediately upon defaulting on an agreement, the definition of “default” sometimes varies state-to-state. Some states permit lenders to repossess vehicles after just one missed payment. Others require several missed payments.

The definition of default will be outlined in a borrower's contract.

Once a borrower defaults on their auto title loan, a lender is permitted to seize the borrower’s vehicle at anytime, without notice, and they’re permitted to come onto a borrower’s property in order to do so.

However, under no circumstances can a lender make threats of physical force against a borrower. Physical threats against other, non-collateralized property is also forbidden. That means if a borrower has their vehicle in a closed garage, a lender or Repossession Company is unable to physically pry the garage open.

Once a borrower’s vehicle has been repossessed, the car title loan lender will sell it at auction. Any money acquired as a result of liquidating the vehicle at auction will go towards satisfying the remaining balance on the defaulted auto title loan.

If by chance the auction yields more money than the car title loan’s balance, the lender is required to give that additional money back to the defaulted borrower.

Any personal property that was in the vehicle upon repossession must be returned to the defaulted borrower as well.

Is it Even Worth the Risk?

Given the possible consequence that comes with this type of financing, is it even worth the risk?

Car title loans should be reserved only for those who are confident they can repay the debt. Those who have a steady flow of income and just need that extra surge of cash may find their services invaluable.

And for those who don’t have the credit reputation needed to qualify for money at traditional banks, vehicle-backed loans may be their only financing option.

The nice thing about modern technology is that consumers can apply for a car title loan quote and receive a lender's offer in a matter of hours. But there’s no obligation to accept any offer, so consumers can freely weigh the pros and cons of any solicited offer.