OppLoans Word of the Week: Repossession
Different types of loans come with different advantages, but they also come with different risks. And in the case of car title loans, they’re pretty much all risk. But if you’re looking for just one reason to steer clear of title loans, the threat of repossession should be enough. (Don’t get us wrong, there are so many reasons to avoid title loans. It’s hard to pick just one.) On average, one out of five title loan customers end up having their car repossessed.
What is Repossession?
Repossession is most commonly associated with car loans, but really it can apply to any loan that’s secured by collateral. If a borrower defaults on their loan, the lender has a legal right to seize—or repossess—the borrower’s collateral. (The definition of “default” is going to vary depending on the terms of the loan agreement, but it’s basically a fancy word for “failing to pay the loan back.”) When a lender repossesses a borrower’s collateral, they usually do so with the intent of selling it in order to make up their losses on the loan.
How does Repossession work?
With a car title or standard auto loan, the borrower’s collateral is their car, truck, SUV or motorcycle. Once the repossession process has begun, the lender might send someone with a tow truck or a spare set of keys to take the vehicle.
With a home mortgage, the borrower’s collateral is their house, and the repossession process is referred to as “foreclosure.” Foreclosure generally occurs once a person is at least four months behind on their mortgage payments. While the process varies state-by-state, it usually involves the lender giving the borrower ample public notice to leave the property.
With a pawn shop loan, repossession is actually not necessary, because the borrower hands over their collateral to the lender before receiving the loan. They get their property back only once the loan is paid off.
What are my rights during Repossession?
This depends on where you live; different states have different laws that govern exactly what lenders can and cannot do during the repossession process. Generally, they cannot commit a “breach of the peace,” which includes verbal and physical threats, trespassing, and acts of violence.
Are there alternatives to Title Loans?
Absolutely there are. If you need a loan and don’t want to risk losing your car, house, or property, consider looking for an unsecured personal loan. Installment loans are loans that are paid back over time, rather than in a single lump sum. You’ll get a longer time to repay the principal (the amount you borrowed), and you’re not going to lose your car in the meantime.
But, as always, you’ll want to do your homework before taking out any loan. Avoid all payday loans: They won’t take your car but they’re just as predatory as title lenders.
Look instead to safe, Better Business Bureau-accredited lenders like OppLoans. With OppLoans, you’re in no danger of losing your car. Instead, you’ll get a lower rate and longer term installment loan that’s structured to help you now and make it easy to repay in the future.
Last week’s entry: Rollover
- Single-Payment Vehicle Title Lending. (2016, May). Retrieved from http://files.consumerfinance.gov/f/documents/201605_cfpb_single-payment-vehicle-title-lending.pdf
- “How does foreclosure work?” Consumer Financial Protection Bureau: Ask CFPB. Retrieved from http://www.consumerfinance.gov/askcfpb/287/how-does-foreclosure-work.html