Does Defaulting on a Title Loan Affect Your Credit?

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Title Loans Can Be Helpful for People With Bad Credit Scores

Unless you’re incredibly financially fortunate, at some point in your life, you may need money but not have any immediately available. Perhaps a medical emergency drains your funds unexpectedly, or your landlord increases the rent, and you can no longer afford other bills. There are many reasons someone may struggle financially, and navigating your way out can be stressful. 

Applying for traditional bank loans can be almost impossible for people with bad credit histories. You may face denial or obtain loans with high-interest rates and hidden fees. This option can end up adding more stress than it relieves!

Car title loans can be helpful for people experiencing these circumstances because you don’t need perfect credit to apply, and you can even get a title loan with expired tags. Additionally, qualified borrowers may receive access to money within the same business day as starting! While this can be great for people who need financial assistance, you may be wondering if title loans can affect your credit. 

The answer to this question is yes and no. Below is why defaulting on your loan could affect your credit and why it may not! 

How Do Online Car Title Loans Work?

Title loans can be great options for people with bad credit scores because their history isn’t the main focus of approval! Online title loans work by allowing a person to borrow money using the available equity in their vehicles. Lenders place a lien on the vehicle title if you obtain approval and remove it once the money is repaid. The vehicle title services as collateral if the money is not paid back!

Lenders can legally repossess the car to make up for lost profit if you fail to make your monthly title loan payments. Traditional bank loans do not use a collateral-based system for lending money. Instead, they look at a person’s credit history to determine eligibility. If your score is too low, they may deny you approval. With a title loan, your credit score will be checked, but lenders care much more about two other factors:

  • How Much Available Equity Is in Your Vehicle
  • If You Have Consistent Income to Pay the Loan Back

Credit doesn’t matter when applying for title loans because there is physical collateral on the line if you don’t pay back the money. 

How Can Title Loans Affect Your Credit Score?

When taking out any loan, you begin the repayment process, which can impact your credit score. How your credit score is affected depends on several different factors. 

First, your credit score with a title loan can depend on your responsibility as a borrower. Defaulting on your payments can negatively affect your score, regardless of the loan you have. When you stop making monthly title loan payments, your loan defaults. When your loan defaults, lenders can report this to the major credit bureaus, potentially impacting your score negatively. 

Second, taking out another loan could harm your score if you have existing debt or your credit utilization is higher. 

How Can I Avoid Defaulting on My Title Loan?

The best way to avoid defaulting on your title loan is by making your monthly payments on time. The most significant contributing factor to a bad credit score is missed bill payments, and one can stay on your record for years. 

Avoid loan defaulting by setting up automatic withdrawals from your bank account! With this system, you never have to worry about specific dates, and the money will be automatically withdrawn from your account at the correct times. 

Apply for a Car Title Loan Online Today!

Having a bad credit score can negatively affect your life in many ways. This score can prevent you from obtaining housing, credit cards, loans, and other necessities for living comfortably. Improving your credit score can take years of no missed payments, and only some have the luxury of time on their hands. 

Online title loans could be the best solution if you need to access money quickly! People with bad credit scores can apply, and you may receive an approval within the same business day as starting. Start today by filling out this inquiry form or calling to speak with a title loan agent. 

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