Can I Settle a Car Title Loan With a Lien Lender?

A car title loan can be used to purchase a car when a borrower is struggling to qualify for other types of loans or needs to purchase a car quickly. These title loans carry innate risks that borrowers should be wary of, usually connected with the length of the loan and the motives of the lender. Settling a car loan refers to using means other than normal payments to end the debt, especially when it becomes too difficult to pay. Borrowers may be able to settle car title loans in this way, but it is not likely.

Car Title Loan

A car title loan uses the title for the car itself as collateral. This means that the borrower gives the title to the lender he used to purchase the car. This allows the lender to quickly and easily take possession of the car and sell it if the loan terms are not met. If the car does not sell for enough money to pay back the loan, then the lender can sue for the remainder. Car title loans tend to only last months and have high interest rates.

Liens

A lien is a claim on property that a lender can use to collect on debts owed which have not been repaid. Repaying a car title loan is often difficult for a borrower because of the short term (which means higher payments) and the high rates. In this case, the car title lender is already a lienholder because the lender possesses the title. The lender can seize the car when payments are not made, but any money still owed must be paid back.

Other Property

In some cases, borrowers may be able to settle the car title loan by giving up other personal property but keeping the car. This is rare, because it is much easier for the lender to simply use the car. But if the loan contract makes specific allowance for the use of other property, such as a bank account or another car, then the lender can use this property to settle the loan. However, the lenders that do allow such unorthodox action will often require property value higher than the debt to settle.

Considerations

Car title loans are infamous for their use by predatory lenders. These lenders attempt to trap borrowers in a cycle of loans that build up uncontrollable interest, or do not expect the borrower to pay off the loan and plan on seizing the car regardless of borrower actions. This means that many lenders will be averse to any type of settlement that includes a lien other than the lien to seize the car. They may not care about the borrower's position at all, which can make negotiations difficult.