[Loophole] How to Legally Get Out of a Car Title Loan

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While an auto title loan provides quick access to the equity you have in your vehicle, the loan can prove to be very expensive. According to a March 2008 Associated Press article, the interest rate for these loans can be in the triple digits, making them difficult to repay.

For example, a borrower in Missouri borrowed $2,215 and agreed to a 300-percent interest rate, according to a March 2012 case heard by the Missouri Supreme Court. After making two payments, both for more than $1,000, she had only reduced the principal balance to $2,214.94. Short of paying the entire balance, it is difficult to eliminate title loans.

Instruction Notes and Warning

Contact an attorney to determine if your contract is void or voidable in your state. A contract is void if neither party involved can complete the agreement because it breaks a law. It is voidable if it is a legal contract, but a law gives you the right to cancel it.

The interest rate on title loans made to military service members and dependents cannot be more than 36 percent.

You might be able to keep your car after declaring bankruptcy, depending on its value.

If your contract contains a forced arbitration clause that forbids you from suing, you will have to go through arbitration with a mediator assigned by the title company instead of opting to sue.

The Loophole

Step 1

Read your loan paperwork. Pay attention to the interest rate and any additional fees charged by the lender.

Step 2

Review the laws in your state regarding title loans. Many states have laws regulating the interest rate and fees charged by title lenders. If you signed a contract with an interest rate that is higher than your state allows, the contract might be void. This means that the title lender cannot force you to repay the loan.

Step 3

Claim mental incapacity if you were intoxicated when you signed for the loan. This defense is only available if the representative for the title lender knew that you were drinking. The impairment must negate your understanding of the contract for it to render the contract voidable. If you were under the legal age of consent — 18 years old in most states — the contract is voidable.

Step 4

Tell the lender that the contract is voidable and you will not pay. According to McFarland Law Group of Denver, the lender cannot repossess your vehicle if the contract is voidable.

Step 5

Declare bankruptcy. If you have no other option, seek the advice of a bankruptcy attorney to help you decide if bankruptcy is the only way you can legally get out of the loan.