Home Finance Why You Should Avoid Defaulting on a Title Loan in Arizona

Why You Should Avoid Defaulting on a Title Loan in Arizona

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title loans

A car title loan is a great way to get quick cash to meet your needs, especially for borrowers with a bad credit history. It offers fast approval on short term loans. However, defaulting on a car title loan can be costly and can affect your ability to get another loan in the future.

An unpaid title loan can have a ripple effect that will not only destroy your credit but also lead to losing your car.

Understanding Title Loans

If you are considering this type of loan, it’s essential to understand how title loans work.

A title loan is a short-term loan with few or no credit requirements. The loan is secured using your car as collateral. The lender will hold a lien on your vehicle until you repay the loan

To get a title loan with your car, you need to have sufficient equity on it. You must have paid off an adequate amount, or the entire loan used to purchase the vehicle.

So in essence, while an Arizona title loan provides quick cash, it empowers the lender to repossess your vehicle for defaulting on a car title loan.

The title loan requirement for Arizona is quite relaxed. Lenders aren’t required to run any checks on the borrower. If you are above 18, have a government-issued ID and a lien-free car, you can get a title loan. The maximum loan amount is based on the car’s current value and can be within 30 – 50 percent.

Besides cars, some lenders also give out title loans on motorcycles, boats, construction equipment, logging equipment, RVs and more.

On average, you can borrow from $50 to $5,500 with your car. While the repayment period is usually within 15 – 30 days, there is no term limit for auto loans in Arizona.

What is Defaulting on a Car Title Loan?

Defaulting on a car title loan means not making the required repayments when they are due. When a lender issues a loan, you are obligated to pay back monthly, bi-weekly, or weekly. But when you continue to miss your payments without communicating to the lender, it can result in a car title loan default. At that point, the lender can start the process to repossess the vehicle.

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The definition of a title loan default varies amongst lenders and states. The number of times a borrower misses a loan payment to be considered in default depends on the state. It is also included in the contractual agreement between the lender and borrower.

What If You Can’t Repay Your Loan

It’s essential to ensure you are capable of making your loan repayments on the due date before getting a title loan. Having an unpaid title loan gives the lender the right to repossess your car. If you think you’ll default on your loan, you should reach out to your lender to let them know. They may be willing to extend the repayment period to give you time to pay up. The Arizona law allows loan extensions if you are unable to make the payment. The process is called “rolling over a loan”.

If you still can’t catch up on payments, then it’s best to voluntarily surrender the car to the lender, instead of waiting for the repossession process.

What Happens When You Default on a Car Title Loans?

There are consequences when you default on your loan. According to the report from the consumer protection bureau, about 20% of title loans go into default. And since you used the vehicle as collateral, a lender is permitted by law to seize it without notice once you miss your repayment the number of times on the agreement.

In Arizona, the lender is expected to get a court order to repossess the car, and show it to the borrower during the process. If the lender fails to show a valid court order, then the borrower doesn’t need to surrender the car.

You may also be required to pay penalties for defaulting and given more time to pay off the loan. These penalties depend on the state. In Arizona, if a borrower is unable to make a payment ten days after the due date, the lender can charge a late fee of up to 5% of the unpaid balance of the loan.

There is also the impact on your credit. Usually, short term lenders don’t report to the bureau, but these change when you default on the loan and your car is repossessed. Then the collection agency may report it.

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An unpaid title loan can stay on your record for up to 15 years and may take a hit on your credit score and affect your ability to get other loans.

What Happens When Your Car is Repossessed?

Once the car is repossessed, the lender can then sell it off to cover for the balance of the loan. Some states allow the lender to refund the borrower the excess of the car sales amount. So, for instance, if the vehicle is sold for $3,000, and the balance on the loan repayment is $2,000, then the lender will balance the borrower the extra $1,000. This is also the case in Arizona, where the lender is obligated to pay the extra of the sale amount to the borrower.

How to Get out of a Title Loan?

If you are considering getting out of a title loan, then there are several ways. But you have to negotiate with the lender. Here are some options;

Paying off your loan

This is the best and most realistic option if you have the funds for it. Contact your lender and ask for a payoff amount so that you can avoid a default.

Refinance your loan

Refinancing your loan helps lower your interest rate and save you money. Refinancing your loan however doesn’t get you out of the loan. It only allows you to move the loan from one lender to another. Also, not all states enable the refinancing of title loans.

Consolidate your debts

If you have loans owed to other lenders, you may consider consolidating the debt to move the title loan to that lender. This will likely reduce your interest rates and repayment amounts, and, most importantly, it won’t require your car as collateral.

Conclusively, if you are considering a title loan, then it’s also important to know what happens if you default on your loan. Always assess your financial position to determine whether you can meet the repayments so you won’t end up with unpaid title loan.

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