What is a Title Loan?

Title loans are loans that you take out against the title on your car. If you own a vehicle and have paid it off in full (or bought it in one payment), a title loan allows you to take out a loan against it. Put simply, the lender gives you an amount of money and holds on to the title of your car. Upon paying off the loan, you then receive the title to your vehicle back.

However, let us warn you right now that title loans should be avoided at all costs. The interest rates on title loans are enormously high, going from 100% to well over 200% APR. Yes, OVER 200% APR. Due to the exceedingly high interest rates, many people default on these title loans by missing 1 or 2 payments. This then results in the lender repossessing your vehicle and selling it at auction for its value. They are legally entitled to do this (most of the time at least) because they now legally hold the title to your car as per the contract you signed with them.

Sometimes, however, your repossessed car will not sell enough at auction to pay off the balance on the debt that you owe to the company. If your interest rates are very high, for example, your vehicle’s auction value may simply not be enough to pay the money off that you owe. Title loan companies also often attach sneaky fine-print fees such as repossession fees to the cost, increasing your debt balance even further. This can leave you with no car, as well as additional debt still left over. In this case, debt collection agencies will often get involved, and you may even find yourself caught up in legal proceedings.

Title loans are often mentioned in the same vein as payday loans, with people describing these kinds of lenders as “legal loan sharks”. There’s some truth to that description. Title loans (like payday loans) prey on the ignorant and the desperate, and it is not uncommon to hear of people declaring bankruptcy due to crippling title loan debt. Don’t be one of the naïve people who falls for the scheme.

Always look for alternative means of a loan other than a title loan. Whether its borrowing money from a relative/friend, taking out a personal loan, or selling some of your personal possessions. We strongly recommend not to take out a title loan, even if you’re desperate for money, as you will quickly regret it when you are hit with 3-figure interest rates and a plethora of hidden fees, as well as the possibility of your vehicle being taken away from you entirely.