I’ve been asked the following question several times here on our site and I believe it’s time for me to address the question:
Does defaulting on an online title loan put you in jail?
There is nothing illegal about defaulting on a loan and there’s certainly nothing illegal about defaulting on a title loan. So the simple answer is, ‘no’, you don’t go to jail when you default on a title loan.
You can find a title loan on the internet in just a few quick seconds. The ability to qualify for one of these loans is fairly easy and straightforward. Once you find a company you want to work with you can typically apply in less than 30 minutes and get approved and cash in your pocket in the same day. That’s the allure of these products. Quick and easy funding. Although the drawback to these loans can be devastating. If you default on these loans you won’t go to jail, but you will lose your vehicle.
Auto title lenders typically only need a few things to qualify you for a title loan. You don’t need to have good credit. If you have the title of the vehicle in your name and you have an income source you’ll get approved by most lenders. Now how much you get for your vehicles title depends on the lender. Some will provide you cash for up to 60% of the value of your vehicle. Some may come in lower, but that should give you a good idea as to how much money you can extract with one of these loans.
When a lender is looking to approve you for a loan they want to see if you have an income stream of at least $1,000 a month. Or about $12,000 a year, which is far below poverty levels. Depending on the size of the loan you can expect to have a monthly payment of about 10% of the loan amount. For example, if you borrow $1,000 you can expect to have a monthly payment of about $100. Now depending on how long you take to pay off your loan will determine your APR. As you can see, if you pay the aforementioned loan off within a one year period, you’ll be paying $200 in interest and fees for the $1,000 borrowed.
So what happens if you default on your title loan? Well, you’ll be putting yourself in a position for the lender to repossess your vehicle. As we’ve addressed in other articles on this site, lenders do not want to repossess your car. They make far more money and have less of a hassle by the consumer paying back the loan. However, if they repossess your vehicle you will only have a certain amount of time before they come collecting. Each state law is different, but some states allow repossession of your vehicle immediately. Some will take a little longer. Depending on the communication and the lender you have chosen you may be able to work out a deal with them. We highly advise you to read the laws to protect consumers and the federal laws that are put in place when it comes to debt collectors. You need to be fully knowledgeable of your rights before entering one of these contracts.
Many pundits have scared consumers from using title loans because of the ramifications of defaulting. Who wants to have their vehicle repossessed? But please keep in mind that you’re not signing a contract with the mob. They’re not going to come and haul you off to jail or come and break your legs. Since consumer laws have been put in place, collectors can’t even threaten you. If they do contact you and verbally threaten you, you have rights that you can utilize to protect yourself from these types of collectors. The Fair Debt Collection Practice Act allows you to sue a collector if they unfairly threaten you.
Before you decide to sign a contract with an online title company we suggest that you look for other ways of financing. These types of loans typically have high interest rates; however, due to the high volume of competition, you may be able to find a loan that is lower than your typical title loan. But with that being said, if you qualify for a traditional loan with your credit union or bank you will most likely have a lower APR with one of these types of loans. Heck, even a cash advance on a credit card may be cost you less in the long-run.
In the end, you have decide what is best for your personal situation. These loans come with some pretty hefty consequences if you default on them, so please consider your decision adequately. But as the question of this article states, one of those consequences is not jail time.