Consumers who have bad credit and own their vehicle, may often consider a title loan when in a financial crunch. However, before placing your vehicle up as collateral for a loan, it’s important to consider the consequences if you fail to repay it. By Missouri law, failure to repay the loan entitles the lender to repossess the vehicle, but there are specific policies lenders must abide by during the repossession process.
According to the Division of Finance, which regulates Missouri title loan companies, the loan must be 10 days past due before any action can be taken. So a late payment that is only 5 days past due, will not result in repossession or the threat of repossession.
Once the loan is 10 days past due, the lender is required to send out the “Notice of Default and Right to Cure.” This notice states the payment amount due and the deadline to make the payment. It also gives a warning that failure to make payment by the deadline could result in the lender exercising their right to repossess the vehicle.
Missouri law requires that the deadline to make the payment be a minimum of 20 days. Allowing customers at least 20 days to cure the default, after the loan is 10 days past due, provides Missouri residents a minimum of 30 days to make payment. Compared to other states, this is a considerable length of time to remedy a default.
During the course of the loan, if the borrower is late making payment a second time, the lender is required to wait 10 days and then send out a “Second Notice of Default and Right to Cure.” This notice provides the same information as well as the same 20 day grace period as the first notice, but there is one additional warning. The warning states that if the borrower is late a third time, they will not receive another notice, nor will they be entitled to “cure the default.”
Failure to make payment after the grace period will result in repossession of the vehicle. Missouri regulations require lenders to send borrowers notification that they intend to sell the vehicle and then allow at least 10 days for the borrower to repay the loan in full and thereby redeem the vehicle. If the borrower fails to redeem the vehicle after 10 days, then the lender is entitled to sell the property.
Lenders are entitled to the profits from the sale of the vehicle in order to cover the unpaid balance of the loan and other financing expenses. Title loan companies can also use the proceeds from the sale to cover their repossession costs, or any other repairs or expenses associated with the vehicle.
However, Missouri law protects borrowers in that lenders who have covered their expenses from the sale of the vehicle, are required to “return the excess funds to the customer.” Conversely, if there is a deficit amount after the sale of the vehicle, the borrower is required to pay that amount in full. Lenders are also entitled to charge interest on this amount.