As with any other collateralized loans, car title loans pose the risk of repossession. This is because the vehicle is used to secure the loan. If the loan is not repaid, the vehicle becomes subject to repossession.
Oh well, time to throw your hands in the air and forget about borrowing, right? Not so fast. Those who wish to take out car title loans can take steps to avoid a repossession. This way, they can still borrow money without losing their means of transportation.
Let's take a closer look at the risk of repossession and how you can avoid it when taking out a car title loan.
Risk of Repossession
First, let's consider the risk of repossession in the car title loan industry. Do a lot of people end up losing their vehicles?
Most people do not go through a repossession when taking out a car title loan. Studies show that vehicles are repossessed 4 to 8 percent of the time. This means that over 90 percent of car title loans are issued without the vehicle being repossessed.
Also, many people neglect to consider that car title loans are less risky than other collateralized loans – such as home equity loans – in some ways. Just think about it: would you rather risk your vehicle or your home?
How to Avoid a Repossession
Having to look over your shoulder for a repo man is not a desirable situation. So, you may wish to take steps to avoid this reliably minor risk. These include the following:
Work With a Trustworthy Lender
Research a few lenders on the Internet. Check them out with the Better Business Bureau at BBB.org and through your own searches. By doing so, you'll help ensure that you're dealing with a company who'd rather give you a reasonable car title loan than repossess your vehicle.
Take Out Only What You Need
Just because you qualify for $ 10,000 does not mean that you should take it all. For example, if you need money to pay for a $ 4,000 medical bill, take out $ 4,000 – just enough to pay the bill.
Pay Installments on Time
Be sure to make your payments on time. Doing so will keep your interest payments down and the lender will have no reason to repossess your vehicle.
Try to Pay Ahead of Schedule
It is necessary to pay your loan installments on time. However, if you are in the position to do so, begin paying ahead of schedule. This will help you pay it off faster and, once it's paid off, there will be no chance of a repossession.
You may wish to confirm that this is OK to do with your lender.
Renew Your Loan
Life happens. If something comes up and you can not make your monthly payments on schedule, consider renewing your loan. You'll have to pay extra interest, so this should only be considered if you have an unexpected problem making payments. In other words, do not take out a car title loan knowing that you can only afford it if you renew it.
The Bottom Line
Taking out a car title loan is a personal financial decision. The risk of repossession is relatively low and can be avoided with a few simple measures. All debt involves some risk, but savvy consumers can make the best of it.