How to get out of a car title loan legally

Car title loans are expensive to repay but offer an easy way to get a loan if you have bad credit. If you’re at risk of falling behind on your payments, you might be wondering how to get out of a car title loan legally.

Keep reading to find out what your options are, how each option works and what happens if you don’t pay a title loan.

What is a car title loan?

A car title loan uses your vehicle equity as collateral. Because the loan is secured, it’s easier for people with bad or limited credit to qualify. The downside is that the lender can repossess your car if you default on the loan.

Must read: Car title loans in Canada

4 ways to get out of a car title loan legally

If you’re struggling to keep up with the repayments on your car title loan, there are a few options available.

1. Pay off the loan

The best way to get out of a car title loan is to pay it off. You can make extra repayments to pay down what you owe, or you pay off the entire loan early without penalty. This reduces your total interest costs and releases the lien on your vehicle. Given how expensive title loans are, this option will save you the most money.

Unfortunately, if you’re here because you’re looking for ways to get out of a title loan, paying off your loan may not be an affordable option. But you might be able to consider selling some valuables or borrowing from family to raise the funds needed to pay off your loan.

2. Negotiate new loan terms

If you’re struggling to make repayments, contact your lender to find out if they’re willing to work with you to create a new payment plan. Try to negotiate a lower interest rate or longer loan term to make your monthly payment more affordable.

This can help you get your loan repayments under control and make it easier to balance your monthly budget.

3. Sell your car

If you can’t see a way to pay off your car title loan, the best option may be to cut your losses and sell your car. You can then use those funds to pay off the loan balance. Make sure you pay off your title loan’s balance before transferring the car title to the new owner.

This option will reduce the amount of interest you pay and protect your credit score from dipping if you fall behind on payments. And if you have any money left over after settling your title loan, you can use it to buy a more affordable car.

4. Get an unsecured personal loan

Another way you may be able to get out of a car title loan legally is to get a debt consolidation loan. If you take out an unsecured personal loan, you can use it to pay off your car title loan. You’ll have a new loan to pay off, but there won’t be a risk of losing your car if you fall behind on payments.

Before choosing this option, check if you qualify for a personal loan with a lower interest rate than your current car title loan. Factor in brokerage fees and any other costs into your calculation. If you can get a loan with a competitive rate and an affordable monthly payment, you’ll be able to keep your car and gradually pay off your debt.

Related: Best debt consolidation loans in Canada

What happens if you don’t pay a title loan?

If you simply stop making payments on a car title loan, the lender might charge you missed payment fees. You’ll also need to contend with NSF fees from your bank if there aren’t enough funds in your account for scheduled loan payments to go through.

The lender might report missed payments to the credit bureaus, which will hurt your credit score. Your debt could be sent to a collection agency that will work persistently to get you to settle what you owe.

If the lender had an ignition immobilizer or GPS tracker installed on your vehicle, they may activate these devices. And if it’s unlikely that you’ll repay what you owe, the lender also has the right to repossess your vehicle and sell it to recover their money.

Car title loan alternatives

Car title loans are an expensive way to borrow money. You may want to consider the following alternatives, which may be a better fit for your financial situation.

• Unsecured personal loan. Some online lenders specialize in bad credit personal loans. They have lenient eligibility criteria and will consider your employment and income rather than your credit score to determine your creditworthiness. It’s possible to get funded the same day, but you’ll need to watch out for high rates and fees. Learn more about the best bad credit loans.
• Credit union loan. Some credit unions offer short-term, competitive loans to suit borrowers with less-than-perfect credit. These loans have lenient eligibility criteria, allow you to borrow up to $2,500 and offer fast funding. Examples include the Vancity Fair and Fast Loan and the Servus Credit Union Fast Forward Small Loan.

Bottom line

Car title loans are expensive, so it can be difficult to budget for repayments. But if you’re struggling to make on-time payments, stopping your loan payments can have serious financial consequences. That’s why you should compare ways to get out of a car title loan legally to find the best way to get your finances back on track.

Frequently asked questions

• Can you go to jail for not paying off a title loan?

  No, you will not be sent to jail for failing to repay a car title loan. However, your vehicle will be repossessed, your credit score will take a big negative hit and there will be a black mark on your credit report for up to six years.

• How can I get a title loan with no job?

  Because a title loan uses your car as collateral, lenders have lenient eligibility criteria. As a result, it's possible to get a title loan with no job. However, you'll need to receive some sort of income, such as government benefits, and you'll need to provide proof of income to demonstrate that you can afford to make on-time loan payments.

• How late can you be on a title loan before they take your car?

  It depends. Check your loan contract to find out whether any grace period applies if you fall behind on payments. Title loan repossession laws vary depending on where you live, so check the rules in your province or territory.

  That being said, you shouldn't just stop making title loan payments. Doing so could have a big negative impact on your credit score, the lender may charge extra fees and you might also be hit with an NSF fee from your bank. That's why it's better to call your lender in advance to come up with a new payment plan or consider other ways to get out of a car title loan legally.

• Are there charities that help with title loans?

  If you're struggling with debt, check with your provincial government to find out whether you qualify for any government assistance. It's also a good idea to book a free credit counselling session to get advice on how to take control of your debt and manage your money.

• Can I refinance a car title loan?

  Yes, you may be able to refinance your title loan with some lenders to lower your monthly payment or interest rate. When deciding if refinancing is right for you, bear in mind that there may be additional fees.