An unexpected bill or emergency can force you to apply for a title loan. Here you have to use your car as collateral in case you default on the repayments. This involves surrendering your vehicle title to the lender. Fail to repay the loan amount and you risk losing your car.
While title loans can literally get you out of a sticky financial situation at the time of borrowing we can’t overlook the negative aspects associated with these short-term loans. They’re notoriously expensive; title loans are known to attract triple digit Annual Percentage Rates (APR) and very high fees.
If you find yourself failing to keep up with the repayments, don’t despair just yet because there’s hope. There are companies that pay off title loans.
How Does a Title Loan Buyout Work?
You look for a title loan company that’s willing to buy out your existing debt. This means the company will literally pay off your existing title loan lender. As a result, your original loan is replaced with another which offers the following advantages.
Lower Interest Rates
A title loan buyout will come with lower interest rates compared to your original loan. This can significantly decrease the interest you pay over the duration of your loan.
With the new lender, you’re usually offered better terms that you’re comfortable with. You’re no longer under the pressure associated with repaying your original loan. And in most cases your monthly instalments are reduced, so you’re more likely to be able to afford the new repayments.
Reduce the Risk of Losing Your Car
The possibility of your car being repossessed is significantly reduced since you’re less likely to skip instalments with the new lender.
What You Need to Keep in Mind
Granted, switching lenders can minimize the financial burden when faced with an emergency. But the reality is that you’re still in debt. If you don’t adhere to the new repayment plan, you still run the risk of losing your car.
In addition, even though the interest rates are reduced, some lenders still charge heavy fees for a title loan buyout. Be sure to read the contract thoroughly — including the fine print — to avoid any unpleasant surprises.
Lastly, there’s always a risk of paying more money in the long run any time you extend your loan’s terms. So, be conscious of that.
Do You Have Other Options?
Looking for a loan title buyout must be your last option. Explore other cheaper alternatives to repay your loan such as:
- Borrowing from friends or family. They’re less likely to charge you high interest rates and you get to repay at your own pace depending on your agreement.
- You can try negotiating with your existing lender. Some lenders are willing to forfeit a certain portion of your loan if you can at least offer some form of payment upfront.
- Selling your car and opting for a cheaper one is another option. This way you can use the excess funds towards your debt.
Borrowing money should never become a habit, unless it’s the only option you have. Always try to set some funds aside for rainy days where you can. You’ll thank us later.