What Happens if Your Car Is Broken & You Default on a Car Title Loan?
People with financial difficulties sometimes turn to car title loans as a quick source of cash. While these loans may seem appealing, they can quickly turn bad and leave you worse off than before. If you take out a car title loan and subsequently experience car trouble that leaves your car inoperable, you still have to pay the loan. If you default, the lender can repossess the vehicle.
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Car Title Loan
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A car title loan is a loan in which you use your car as collateral. Like other loans, you're responsible to make regular payments to cover the car title loan as well as pay interest on the amount loaned. These loans are usually for small amounts of money, often less than $1,000, and typically charge very high interest rates of 300 percent or more, according to the Iowa Attorney General's Office.
Default
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When you fail to make a payment on your car title loan, known as a default, the lender has the right to take your. Like a car loan lender, the title loan lender has this right because you enter into a secured loan agreement when you agreed to the title loan. A secured loan grants the lender a security interest in the car, a type of property right in which the lender can take the car in certain situations. Many title loan lenders, anticipating possible repossession, require you to hand over a spare set of car keys when you take out the loan.
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Repossession
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Once you default on your loan, the title loan company can repossess the vehicle and then sell it at auction to try to recover the money you still owe. It doesn't matter that the car is broken, wrecked, in disrepair or anything else. If you fail to make payments and default on the loan you will likely have your car repossessed. A lender is entirely within its legal rights to take possession of your car if you default as long as it does so without breaking any laws or committing a crime in the process of repossession.
Lawsuit
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Having a broken car and defaulting on the title loan may not end at repossession. When you get a title loan, the lender uses the car as collateral in case you default. If, after taking possession of the car and selling it at auction the lender has not recovered the outstanding loan amount, it can still sue you to recover what is left over. Because the car is broken, the lender is probably less likely to recover the remaining loan amount, this increases the chances you'll face a lawsuit.
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References
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