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Collection on Title Loan

If I default on a title loan can the lender repossess my vehicle?

I put my car title as collateral on a loan. I have been experiencing financial difficulties and have not made a payment in 45 days and they have issued a warrant in debt for me. They have made no attempts to repo the car but they still have the title. Do they have to repo the car first and then hold me responsible for any remaining balance if any? If not why won't they give the title? Do they have to get the judgment before they can repo the vehicle even though they already have the title?

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Bill's Answer
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Updated: Sep 23, 2014

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Highlights

  • Avoid a title loan if possible.
  • Title loans come with a high APR.
  • Repossession is probable if you fail to pay a title loan.

A "title loan" offers the consumer cash from the lender in exchange for the title of a paid-for vehicle to secure the loan. (The titled property can be a passenger vehicle, motorcycle, boat, or airplane.) Typically, these loans are due back in full 30 days later. There's no credit check and only minimal income verification. The fees range from $80 to $100 for a loan amount of $500. The annual percentage rate (APR) on these loans can be as high as 250%. By federal law, title loan lenders must disclose the interest rates in APR terms, but it is common for title lenders to hide the APR in favor of a monthly rate, which appears less usurious. Many states regulate title loans.

Quick tip #1:  

If you are struggling with debt, get a no-cost, no obligation analysis of your debt options from a pre-screened debt relief provider.

It is common for title lenders to accept interest-only payments for an extended period of time, which causes the consumer to in a very short period of time pay more in interest than the amount borrowed. The lender has the right to repossess the titled property if the consumer defaults on the loan.

Because of the very high interest rates and stiff fees and high risk for losing a vehicle they have paid for, consumers should avoid title loans.

Importance of State Laws

Regarding your question, "Do they have to repo the car first and then hold me responsible for any remaining balance if any?" The answer to this question depends on the laws in your state of residence.

Here is the worst-case scenario: For the sake of argument, let us say that the vehicle has a fair market value of $1,000 and that you got a title loan of $400. Let us also assume that you repaid the creditor $0. The creditor has the right to repossess the vehicle, sell it, and if there is any balance left over after paying the interest, balance, and auction fees, you will receive that surplus.

Now let us change the facts and say that for the sake of argument that the vehicle has a fair market value of $1,000 and you got a title loan of $3,000. Let us assume again that you repaid the creditor $0. The creditor repossesses the vehicle and sells it for $1,000 and tacks on $500 in fees and interest. You would be liable for the deficiency balance of $2,500.

Regarding your question, "Do they have to get the judgment before they can repo the vehicle?" the answer is "maybe" and is dependent on your state of residence. In some states the creditor being on the title gives them the right to repossess the vehicle. The vehicle is, after all, in the creditor’s name. In other states lenders will not take possession of a vehicle but instead file a lawsuit to collect the balance due plus court costs and finance charges. You did not mention your state of residence, so it is impossible for me to say what your rights are in your state.

I hope this information helps you Find. Learn. Save.

Best,

Bill

Bills.com

96 Comments

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  • JW
    May, 2014
    Jordan
    Took out a $5,000 title loan last year in Missouri, and have missed several payments. The car is worth much more than the loan I took out. Can I get arrested or a warrant placed on me? I lost my job right after getting the loan and have yet to find employment. The vehicle is no longer working, just sitting. Embarrassed to call them. Any advice to offer?
    0 Votes

    • BA
      May, 2014
      Bill
      Your ignoring the situation will not make it any better, and will likely make it worse. Call the title lender and explain your situation, and ask if it offers a deferment payment plan for people in circumstances like yours.
      0 Votes

  • AT
    May, 2014
    Angeline
    I defaulted on a title loan I got in Virginia 7 years ago. I have since moved to Michigan and finally called the lien holder. She agreed to settle for 20%, which is good news. My question is since I am out of state and I cannot walk into the office and trade the money for my lien release, how can I be sure once I send the money, that I will actually get the title and she is not going to just apply it to my total loan as a payment? I know these places can be tricky. Can I request she fax me a letter with the agreement we made as proof before I send the money? What should I say or do?
    0 Votes

    • BA
      May, 2014
      Bill
      Request a written settlement offer before you send any payment. This is a "best practice" whenever a person reaches a settlement with a creditor. A fax or paper letter are considered interchangeable by most courts today. See the Bills.com article Key Terms to Look For In a Debt Settlement Letter for guidance on your settlement letter question.

      You mentioned a title loan, which usually makes the lender a lienholder on your vehicle's title. Generally, liens are not subject to a state's statute of limitations. That means if the statute of limitations for a written contract in your state is X years, and you do not make a payment on your vehicle's loan for X years plus 6 months, the lien is still in effect. The lien does not go dormant or expire when the statute of limitations for written contracts runs out. This means even if the lienholder does not pursue you to collect the debt, you need to pay-off the lienholder to sell or even junk a vehicle.

      There are two pieces of good news here, however. First, lienholders will sometimes settle a debt for less than the balance due, as is the case with your lienholder. B sure the language in the settlement letter makes it clear that your settlement payment is in exchange for them releasing the lien and giving you clear title to the vehicle. Second, the statute of limitations applies to deficiency balances. If the vehicle is repossessed and then sold, your state's statute of limitations starts on or about the date the lender sells the vehicle.
      0 Votes

  • FD
    Apr, 2014
    fatimah
    i live in georgia and my car costs way more than the title loan. my job relocated and now i cant afford to pay the loan. 2 questions, will they repossess the car or file a law suit?...if the sell it will they give me the extra money??
    0 Votes

    • BA
      Apr, 2014
      Bill
      If you default on the loan you would certainly face repossession. Title loan lenders are notorious for moving very fast to repossess when a payment is missed.

      If your car is repo'd, it will be sold and the proceeds applied to your debt. You are entitled to surplus funds, if they exist, less any fees tied to the costs for repossessing the car that the lender is allowed to tack on to the loan balance.

      A real risk, however, is the lender has no incentive to sell the car for more than it is owed. It could easily accept a low-ball offer that leaves you with the short end of the stick. Move to sell the car yourself for the most you can get, use the proceeds to pay off the title loan and keep the rest.
      0 Votes

  • HH
    Apr, 2014
    Haley
    I took out a title loan for a rough estimate of $1,250. I paid my monthly payment on time every month. I had some financial issues happen back in February and as a single mother my main concern was paying my rent and utilities to make sure my child was warm and not homeless. I forgot about my payments and missed February and March for a total of $510. I received a letter April 3rd stating if I did not pay them the full $510 by the 7th I would have defaulted my loan and I would have to pay back the full initial amount and my file would be sent to proceedings in court and I will be responsible for all fees.

    My question is, do I only owe them the amount they lent me or do I owe them the whole amount with the interest rate and all that (I believe over the term it added up to $3,000 something)? Also since they tried serving me papers does that mean my car is now out for repossession? If I just let them take the vehicle do I have to pay them any money since my loan amount is less then my car is worth? Like I said, I'm a single mother and barely making it now. I don't have $1,300 to give them but I could come up with maybe $600 if I had to.

    I'm scared to call them and see what I can do because I've heard such nasty things about the customer service and the way people are treated by them if you default your loan.

    I live in Wisconsin.
    0 Votes

    • BA
      Apr, 2014
      Bill
      You have three tools at hand: Your money, your words, and the law. You must use all three tools to work your way out of this jam.

      Consult with a lawyer who has consumer law experience immediately to learn if the title loan is legal in Wisconsin. If you cannot afford a lawyer, contact Legal Action of Wisconsin or another Wisconsin pro bono program to find no-cost legal services.

      Read the Bills.com article Wisconsin Collection Laws to better understand the state laws that protect you, and the Wisconsin Bar Association's Wisconsin's New Automobile Repossession Law: Creditors in the Driver's Seat to learn more about Wisconsin's repossession laws.

      Read the Bills.com article Debt Settlement Advice to learn how to negotiate an effective settlement to prevent a repossession. The information you learn from your lawyer will help guide you to a solution to the debt.

      You asked what would happen if the sale price of your automobile does not cover the balance due on the loan. The shortfall is called a deficiency balance, and the lender has the right to collect this amount from you.
      0 Votes

  • MP
    Apr, 2014
    Mania
    I live in Georgia. I own my car and I'm having a hard time selling it. The value of my car is about $4,000. I would like the money to go towards another car. My sister told me she took out a title loan for a vehicle she no longer wanted and surrendered the vehicle to the tittle place here in GA. She said nothing was put on her credit and she didn't have to pay anything back, she took the money and they got the car. She did this twice. My question is do you think this is a good idea for me to do. Im thinking about taking out a $5,000 tittle loan and surrendering my car. Will this affect my credit? Will I end up owing anything. Will I just be screwing myself over?
    0 Votes

    • BA
      Apr, 2014
      Bill
      I dislike this idea, and urge you to think about its potential pitfalls.

      When a car is repossessed, the lender typically sells the car at an auction. Auction prices are less than the retail, Craigslist prices we buy and sell for. When the auction price is less than the loan amount due, the difference is called the deficiency balance. The borrower has liability for the deficiency balance, plus the cost of the auction, plus other fees the lender is permitted to add.

      Let's say for the sake of argument a title lender makes a $4,000 loan on your car. You default. The lender repos the car, sells it for $2,000, and adds $500 in fees for the repo and auction. The lender has the legal right to collect $2,500 from you. Your scheme nets you $1,500.

      Now let's change the facts a bit. Let's say you sell your car on Craigslist for $3,000. You get to keep all $3,000. You don't get all $4,000 the car might be worth, but keeping all of your sale proceeds is better than giving up more than half of it later.
      0 Votes