Whether you need to borrow money to start a business, make a rent payment, or pay for your kid’s college tuition, nothing can be more fulfilling than paying off debt. However, life tends to throw unexpected expenses our way and needing quick cash is not a rare incidence. One of the many options for borrowing fast cash comes in the form of an auto title loan (aka auto equity loan, car collateral loan, or pink slip loan), provided, of course, you own a vehicle.
What Exactly is a Title Loan?
A title loan is a loan where the title of your vehicle, be it a motorcycle, RV, SUV, truck or car, is used as collateral to secure a cash loan. The lender issues a car title loan for an agreed amount of money over a short period of time. Usually, the documents you need to show to the lender include the title of the vehicle, an application, and a photo ID. Most lenders also ask to look over the vehicle in person or see photos of the vehicle. As soon as your application is accepted, you hand over the title of the car, sign the agreement, and get your money while you also get to keep driving your vehicle; it’s as simple as that. The maximum amount of money you can borrow depends on the value of the vehicle. Until the loan is paid back, the lender becomes a lien holder on the vehicle.
Overall, if you cannot get approved for a bank loan due to unemployment, bankruptcy, or bad credit taking out a title loan is a great way to borrow the money you need fast and without too much paperwork or delays.
Why Paying Off Your Title Loan Early is to Your Benefit
For starters, paying off any kind of debt early saves you money on interest (the extra money you must pay the lender for the money they gave /lent you). Interest rates vary significantly, depending on the type of loan and lender so doing business with a lender that will charge you the lowest possible interest rate on your auto title loan means you have less money to pay back.
Beware of the small letters when shaking hands with a lender, though. Reputable loan providers usually do not charge pre-payment penalties to borrowers that pay off their auto title loans before the loan term ends.
Of course, crossing one more thing off your debt-to-repay list gives you an added satisfaction too.
What to Do to Pay Off Your Title Loan Faster
The secret is to find a little extra cash every month to be able to make additional monthly payments of bigger payments and repay a title loan early. You can achieve that by:
Round up your Monthly Payments
If, for example, your monthly payment is $176,87, round the amount up to the nearest hundred and pay an even $200. This will help you make more than the minimum payment and it is a great option if you are not sure how much more you should pay. You will see that these few extra bucks you pay per month will add up over time and you will shorten your loan term before you know it (and save money on interest).
Don’t Miss Payment Due Dates
As with almost any loan, forgetting a payment or missing a due date means you will need to pay late fees too. To avoid giving away money like that, it is best to set up automatic payments through your bank account. At pre-set dates, before the deadline, of course, the amount of money you must pay the lender will be deducted from your bank account and sent to the lender’s account. If you have not set up payments through your bank account or do not have one, you can use your smartphone or a web calendar to set up due date reminders.
Make Extra Annual Payments
You do not need to pay 2 payments every single month. Just try to make extra payments, at least, once a year. Perhaps some of the extra money you got as a work bonus or your tax return money could go to pay back your title loan faster.
Most of the times, people feel an unbeatable urge to spend extra money to the last dime. Resist temptation and prefer to enjoy pleasures in the long run rather than short-lived ones!
Create Your Own Repayment Schedule
You can easily create your own amortization schedule using Excel (here is how) or traditional pen and paper and use it to find out what is the date of your last payment. Re-calculate your payoff date every time you make an extra payment. Watching the date getting sooner each time you make an additional payment is an excellent way to keep yourself motivated and not stray from your goal – to pay your auto title loan fast.
Make Extra Money on The Side
If you have some free time, there are lots of legit opportunities to earn some side money; money you can use to pay your loan. For example, you can drive for Uber or Lyft, sell photographs on iStockphoto or Shutterstock, work as a website designer or provide any kind of freelance work (check sites like Upwork), sell items and clothes you no longer need at apps and websites like Poshmark, rent a room in your house on AirBnB, test search engines (or videos or games or online stores) on sites like Swagbucks, take paid surveys, download apps that will give you money just for downloading and using them for some time, or even build your own online business.
Pay it All Off
This, of course, is the ideal solution. So, if you have come to enough cash to repay all of your debt, then do contact the lender and discuss your payoff options. Most lenders will gladly accept your payment, despite the fact that there are some (few ones) that would prefer to keep you in this debt situation and continue paying interest.
Get a Consolidation Loan
If your credit score is good, you may be able to take out a consolidation loan (a form of debt refinance) to pay off the title loan, as well as any other debt you may have. The idea is to reduce your total debt. In many cases, it will not affect credit, as long as you adhere to the agreements of your loan and make payments on time. Just ensure you work with a trusted company. Besides credit unions and small banks, online peer-to-peer lenders are also worth considering.
It should be noted that debt consolidation is not the same as debt management or debt settlement. In debt consolidation, a company or person (usually a bank or credit union) buys all of your debt and you make one payment to them with a lower interest rate than what you had before. In debt management and debt settlement, a third party tries to negotiate lowers interest rates or lower principal balances respectively on your current debts.
Downgrade your Vehicle
This should be your last resort option, if, for some reason, you are no longer able to meet your monthly obligations (i.e. due to injury that will keep you away from work for a long time, or a divorce). Suppose your car is now valued at $12,000 and that you bought it new a few years ago. You got a $3,500 title loan but you are unable to pay back the amount you had borrowed. If you can sell your vehicle for $12,000 and then purchase a more modest (yet safe) used vehicle with $7,500, you will free up cash flow every month and have enough cash to pay off the title loan and any extra charges or fees. One thing that might complicate things is the fact that you do not have a clean title, given that the lender may have the title. Simply communicate with them and you will see that selling your vehicle even under these circumstances can be done.
What NOT to Do When Trying to Get Rid of Title Loan Debt
Some borrowers choose to simply stop making monthly payments. This is something we strongly advise you NOT to do. Defaulting on a loan, any loan, will hurt your credit. That aside, this gives the lender the legal right to repossess your vehicle. So, you will be left with a bad credit score and no vehicle. Plus, you will most likely still owe money. To make things right, you can voluntarily surrender the vehicle; however, do not expect dramatic improvements in the situation. Your credit score will continue to be low.
As for those that wonder, no, (fake) bankruptcy does not help either. You get to lose the car, no matter what. As a general rule, bankruptcy does not wipe out liens; only debts. In many cases, you must pay off the title loan so that you are able to keep the vehicle.
Finally, as the purpose of all this is to pay back your title loan the earliest possible, justifying personal expenses that can be cut back will not help you reach your goal. Making small sacrifices is required, at least for the term of your title loan. For example, you can settle for Netflix for a little while instead of cable. The money you will be able to save that way will quickly get you out of debt. And, if you make this behavior a habit, chances are you will never have to get yourself into any kind of debt, ever again!