According to the Consumer Financial Protection Bureau, one third of title loans end in default, and one in five end in a vehicle being repossessed. That isn’t exactly a great success rate.
What is repossession?
They say possession is nine-tenths of the law, but there are fewer sayings about the legal ins and outs of repossession. And if you’re considering a title loan, it might be something you need to know.
Repossession is something you risk encountering when you take out a title loan. These are secured loans for which you offer up your vehicle as collateral to reassure the lender of your intent to repay them. Generally you will repay this loan in one lump sum. If you default on the loan, or fail to repay it, they can repossess your car. Not only will this leave you without transportation, but you could also still owe them money if the value of your car isn’t deemed enough to cover your debt!
Sometimes the collateral means you can get a slightly better interest rate on your loan, although the average APR is still around 300 percent. These loans are only an option if you already own your car outright—if you’re still making payments towards it, you can’t use it as collateral in a loan.
While collateral in title loans usually refers to a vehicle, collateral in a loan can also include a home. Repossession in those cases is generally referred to as “foreclosure,” and will follow a different set of rules than vehicle repossession. For example, vehicle repossession in a title loan often doesn’t come with a grace period—the lender can send someone to take your car the moment you default.
Your car has been repossessed. What now?
What exactly does it mean for you when your car is repossessed? That’s up to the creditor. They may decide to simply keep your car as compensation for the defaulted loan. They could also sell it either in a private sale or in a public auction. In some states, the creditor is required to notify you of a public auction—giving you the chance to buy back your car if you have the means and inclination. You may also be eligible to buy back your vehicle before these sales occur by paying the amount you owe in full in addition to expenses like the costs of repossession, storage, attorney fees and more.
If the creditor does sell your car, they are required to conduct the sale in a “commercially reasonable manner.” This doesn’t mean they are required to get a great price for your car, but if they sell it for well below market value, it won’t count towards your debt nearly as much as it would have at a higher price. If you suspect they have intentionally failed to sell your car in a commercially reasonable manner, you could have a claim against them for damages or even a defense in a court judgment. It’s definitely important to know the value of your car from an independent source before you begin looking into a title loan.
Your rights when facing repossession vary from state to state, so it’s important to look up the laws where you live. To learn more about your rights, consult a local consumer protection agency or your State Attorney General.
What can they do?
In general, a repossession agent is not to commit a “breach of peace.” While the definition of this breach varies, it usually means they cannot assault you or physically threaten you, and should not damage your property (for example, they can’t knock down your garage door to get to your car). They can, however, go onto your property, a neighbor’s property or your family’s property to repossess your car. So if it’s parked out in the open, they can take it. Also, in no circumstances can they keep or sell any personal property found within the vehicle.
Sounds like it’s as easy as hiding your car, right? Not quite. It’s actually considered a crime to intentionally hide your car to avoid repossession! And while you could contest your perceived intent in a court of law, it’s never helpful to get involved into legal issues and fees on top of your already worrisome debt. A creditor can also file for a replevin lawsuit, in which they seek a court order requiring you to give them the vehicle, plus any additional fees. If you ignore the court order, you could face both civil and criminal penalties—plus court costs.
Repossession affects your credit
Speaking of costs, the person sent to repossess your car charges the lender money. The longer the lender is trying to get the money back from you, the more those costs go up. If they do end up winning a money judgement in court, they could charge you for that as well. Really, hiding your car from repossession could cost you quite a bit more than you might be anticipating. If you’re facing your first missed payment, it would probably be better to communicate with your creditors to find a solution that doesn’t involve a tow truck. It could be something as simple as changing the date payment to something that works better or refinancing the loan to a longer time period with more affordable monthly payments. Missed payments or poor credit often disqualify you for refinancing, though, so it’s better to look into these options before you miss a payment. You could also try contacting a credit counseling organization for advice.
If you don’t already have enough reasons to be wary of repossession, there’s another big one: repossession will affect your credit for seven years. While the repossession will impact your credit significantly, paying off the loan balance should help. In addition, making timely and consistent payments on your credit cards and other loans should help your credit recover more quickly.
If putting your home or vehicle at risk to obtain a loan sounds too risky, you might want to look into other forms of credit. Installment loans, for instance, are paid back in monthly increments over a longer period of time, giving you a better chance of paying off what you owe. Unsecured loans won’t even require you to put up collateral—they’ll just assess you based on your credit history and offer you a customized APR accordingly. And best of all, you’ll never have to worry about what life would look like if your car suddenly disappeared.