Everyone talks about how to get a loan, but not many discuss how to manage the loan properly and stay out of loan default. Loan default simply means that you’ve not met your obligations when it comes to your agreement to repay a loan. When a loan defaults, it is sent to a debt collection agency, whose job is to contact the borrower and receive the unpaid funds. It can result in a lower credit score and may impact your ability to get future credits. This can add fees to your current loan balance and can result in the seizure of your property. Yes, defaulting is bad and you do not want it to happen to you!
Let’s Talk About Loan Default
There are many loan options out there that can cause default, but the responsibility of proper management is solely on the applicant.
Below are examples of loans that an individual can apply for. The more you know about these types of loans, the fewer chances that you will end up in default. Loans can be managed with the proper financial guidance, but some loan options may be better than others for your financial situation.
Car Title Loans
Car title loans are secured with a borrower’s qualifying vehicle title. Eligibility and the loan amount are based on your ability to repay the loan and the value of your car, not your credit score or credit history. Keep in mind that most lenders will conduct a credit check to see whether you are in inactive bankruptcy. The loan amount can range from a few hundred up to a few thousand dollars depending on your state and the value of your vehicle. Since car title loans are secured loans, there is an opportunity for you to receive an affordable loan payment each month. This could prevent you from entering loan default, as the loan payment is tailored to your financial situation.4
Payday loans are generally short-term loans meant for more minor expenses (they usually are only up to a few hundred dollars). Although these loans can be fast and easy to qualify for, their short-term repayment period and fees attached can make them tricky to pay off. Payday loans are notorious for having high-interest rates that leave many borrowers in a cycle of debt.
Secured Personal Loans
In some cases, securing a loan with an asset such as jewelry/antiques, etc., can also be an option for bad credit. While most personal loans are unsecured, some can be secured through an asset. Unsecured personal loans can be difficult for some borrowers to receive approval for, however.
Secured Credit Cards
There are credit cards that are essentially credit builder loans; with down payment and on-time monthly payments, you may get a small credit limit.
In most cases, loan default means that successive payments have been missed over the course of weeks or months. Fortunately, most lenders usually allow a grace period before penalizing the borrower after missing one payment. The time between missing a loan payment and having the loan default is known as delinquency. It gives the debtor time to avoid default by contacting their loan servicer or paying the missed payment(s).
Auto Loans and Default
If you have an auto title loan and your loan defaults, the lender or car dealer is able to legally repossess the car to pay for the outstanding debt. However, repossession is often the last resort. Loan companies do not want your vehicle, it costs more to repossess the vehicle than it would if you just paid off your loan. Because the value of a car depreciates over time, it’s likely that the current value of a repossessed car isn’t enough to cover the outstanding balance of a defaulted loan.
Sometimes, to recover a little bit of the cost, lenders sell the vehicles in auctions to get any cash. Lenders prefer to get money directly from their borrowers rather than seize collateral. So most of the time, they’re willing to work with borrowers to restructure the terms of an auto loan, give extensions, or set up a payment plan you can afford.
What If I Can’t Make My Payments?
People are often afraid to be proactive on their loans because they feel like they will make the situation worse. That is most certainly not the case, communication is the key to avoiding loan default. Do not put it aside and forget about it. The problem with this approach is that the lender will assume that you do not want to pay and will take action against you. If you are making a genuine effort to repay your debts, call the lender directly and tell them you intend to pay back your loan.
Can Default Affect My Credit?
A default can negatively impact your ability to borrow money. When you apply for credit, lenders check your credit information to decide if you’re likely to pay them back. Lenders can reject your loan application for that one reason. In the event that you are already in default, it’s okay, life happens and some lenders understand that. You may find it harder to get approved, however, it’s still possible to borrow money with a default on your record.
What Can I Do To Help Reduce the Negative Impact of a Default?
Once a default is recorded on your credit record, it can not be removed for six years. There is only one exception and that would be if it’s an error. However, there are several things that can reduce its negative impact:
- Repayment: Pay off what you owe as soon as you can.
- Explanation: Ask the reporting agency to add a note to your credit report to help lenders understand why you got into debt. Some examples include medical illness or family emergencies.
- Time: As your default ages, it may become less important to lenders. So, after a few years, you may find it easier to get approved for credit again. Keep a positive mindset.
Refinancing your Title Loan to Avoid Loan Default
One of your smartest options to consider when facing default is refinancing the loan. Refinancing a loan could mean lowering the interest rate, as well as saving money in the long run. Many borrowers will refinance their loan to combat high-interest rates, or lower their monthly payment to something more affordable. That’s where Max Cash® Title Loans can come in and make your life easier. Through Max Cash Title Loans, you have the option to refinance your existing car title loan!
How Do I Apply for a Max Cash Title Loans if I am Worried about Loan Default?
At Max Cash Title Loans, we want to do everything we can to help you avoid loan default.³,⁴ Through Max Cash Title Loans, you can consider the options of refinancing your existing title loan with another lender. This could help you find a better option for your financial situation. Applying for refinancing is similar to applying for a car title loan! Here’s what you can expect:
- Apply to refinance your loan directly online, through our website. Or, contact one of our loan representatives at 855-561-5626!
- After applying, a loan representative will ask you to submit a few documents to help you get qualified for refinancing. This can take just minutes to do!
- Once you have submitted those documents, the last step is to sign your new loan agreement. You might even be able to obtain more funds!
Stop Your Loan from Defaulting Today
Start the refinancing process today by applying online through Max Cash Title Loans. If you have any questions, our loan agents are available 7 days a week to take your call at 855-561-5626!