Yes, title loans can negatively impact your credit if you do not repay the loan as agreed. Title lenders may report late or missed payments to the major credit bureaus (Experian, Equifax, and TransUnion). This can cause your credit score to go down.
Key Takeaways
- Title loans are a type of secured loan where you use your car title as collateral
- If you miss or are late on payments, the lender can report this to credit bureaus
- Late payments can lower your credit score and make it harder to get approved for future loans
- Defaulting on a title loan can lead the lender to repossess your vehicle
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Table of Contents
How Title Loans Work
Title loans allow you to borrow money using your car title as security on the debt. The lender places a lien on your car title in exchange for giving you a loan.
The loan amount is typically 25-50% of your car’s value. You keep driving your car while repaying the loan over a short timeframe, usually 30 days. Title loans tend to have very high interest rates given the risk involved.
If you stop making payments, the lender can take possession of your car to recoup their losses. They can also report payment issues to credit reporting agencies.
The Impact on Your Credit
Since title lenders can report payment activity to credit bureaus, not paying as agreed can hurt your credit:
Late Payments
If you miss payments or pay late, this can show up on your credit report and lower your score. Even being a few days late can be reported and negatively impact your credit.
Defaults
If you default on the loan (fail to pay it back), it will severely damage your credit. Defaulting gives the lender the right to take your car and can stay on your credit report for 7 years. This can make other loans much harder to qualify for.
Repossession
If the title lender repossesses your car after you default, this can also show up on credit reports and hurt your ability to qualify for future loans.
Tips to Protect Your Credit
If you need quick cash, it’s best to avoid title loans when possible to steer clear of credit damage. But if you already have a title loan, make sure to:
- Pay on time – Set up autopay or calendar reminders so you never miss payments. Even one late payment can hurt.
- Pay off the loan – Work to pay off the full loan as soon as possible to stop interest and fees from piling up.
- Talk to the lender if struggling – If you’re struggling with payments, communicate with them upfront to avoid default.
Keeping up with payments is crucial to avoid dings to your credit that can take years to fully recover from. Consider all alternatives first before turning to title loans and risking your credit and vehicle.
