Many car owners turn to car title loans to try and get through a financial crunch. Car or truck title loans have become a much more common attempt to prevent a financial crisis: about 2 million Americans took out these types of loans in 2015. The concept sounds very appealing; there is a family crisis and cash is needed immediately to deal with it. The borrower can keep driving the car they need to get to work or school and the emergency is also handled. There are two types of payment terms for title loans; either all the emergency cash is paid back in one payment a short time later, or the balance borrowed can be paid back in installments over a slightly longer period of time. However, this temporary relief comes at a hefty price for many; a recent federal study found that 1 in 5 vehicle owners who took out a title loan ended up losing the car or truck to repossession. Once the car or truck is taken by the title loan company, the borrower is left without transportation and must again find a way to quickly get cash to have the vehicle returned by paying off the entire balance of the title loan. These loans sometimes have different terms than general financial principles would dictate. Usually, when a car or truck is given as collateral for a loan by the owner, the interest rates are low because the value of the car or truck or SUV serves as a kind of insurance that the financer will not lose any money. The terms of the contract say the financer can take the vehicle and sell it to recover the money borrowed if the borrower does not pay on time. Title loans, however, have some of the highest interest rates in the consumer finance world; typical interest rates can be higher than 300%. These higher interest rates make it much more difficult to pay off these loans. Paying back only the amount borrowed without paying all the interest means there is still a balance outstanding and that remaining balance must be paid as well. Consumers who want to get these types of loans are not able to negotiate lower interest rates with the financers and have to accept the interest rate offered in order to get the loan.
Cash-strapped consumers can get out of the financial corner these loans can create by meeting with an experiences attorney and using a powerful concept in a Chapter 13 reorganization called cramdown. Car and truck owners can restructure the loan secured by the vehicle as part of the overall reorganization and keep their necessary transportation. Terms that are otherwise not flexible can be made more manageable by reducing the interest rate to a court-ordered level and giving families enough time to pay the balance at the new interest rate over more time than typically allowed under the initial contract. Chapter 13 cramdown of car and truck loans are just part of the relief available to consumers who have debts secured by their vehicles and a consultation with an attorney who is familiar with the relief available to people in a chapter 13 case can mean the difference between having the financial pressure created by pursuing creditors trying to repossess someone’s only means of transportation and having a financial plan in place that works and allows for financial peace of mind.