What To Do When You're Stuck in a Predatory Title Loan

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"Predatory loan" is a general term used to describe loans made by lenders that are only interested in profit, usually at the expense of the borrower. Predatory lending can take many forms. When a title is involved, lenders usually require the title to an asset, most often an automobile, in exchange for a hard money loan that is very difficult to pay off and comes with a very high interest rate. The lender benefits from the loan if the borrower pays, but seizes the asset and sells it if the borrower does not pay. It is much easier to avoid predatory loans than to get out of them, but there may be a few options for borrowers stuck in this complex trap.

Canceling the Loan

First, the borrower should immediately try to cancel the loan. For most secured loans there is a grace period in which the borrower can legally request for the loan to be fully canceled without any associated penalties. This cancellation is only allowed within three days of actually taking out the loan, so borrowers must act quickly in order to qualify. Asking for the cancellation in writing with the date clearly indicated is a vital part of this step.

Loan Modification

Ideally, the borrower should seek a loan modification from the predatory lender. By definition, the lender will not be interested in a modification, since it only wants to make profit, but state laws may force a modification. Borrowers may also be able to reach a compromise if they can show, through an appraisal, that an asset is worth far less than the lender wants for it.

Avoid Cyclical Loans

In cases where it's too late to cancel, and lenders won't bargain, borrowers must avoid cyclical loans at all costs. This occurs when predatory lenders threaten to take away the asset to bully borrowers into borrowing on another of their loans in order to pay off the first one. Keeping the asset can be useful, but these additional loans have even worse rates and trap the borrower in mounting debt. It is far better to sell off assets, borrow from other sources and use whatever leverage is available to dodge this cycle of debt.

Legal Representation

If borrowers feel that their loan is predatory and that they cannot get out of it, they should consult an attorney that specializes in debt. This will cost attorney fees, but the advice that attorneys offer can be invaluable. In some cases the predatory lender may be violating state or federal laws through its practices, and the attorney can find ways to relieve the debt pressure on the borrower.

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