Car Title Loan

A A A

DEFINITION

A short-term loan in which the borrower's car title is used as collateral. The borrower must be the lien holder (i.e. own the car outright). Loans are usually for less than 30 days. If the loan is not repaid, the lender can take ownership of the car and sell it to recoup the loan amount.

These loans are also known as "auto title loans" or just "title loans".

INVESTOPEDIA EXPLAINS

Car title loan lenders often target those with low incomes and bad credit and charge high interest rates; those with access to credit cards or bank loans would not be the target customers. Car title or auto title lenders are sometimes called "predatory lenders" because of the way in which they prey on those who need cash in emergency situations.

Although lenders must state the interest rate at the time the loan is made, if it is a short-term loan, the borrower may not realize that the quoted rate is not annualized. For example, if a one-month loan rate is advertised at 25%, that annualized rate is actually 300%.


RELATED TERMS
  1. Collateralized Loan Obligation ...

    A security backed by a pool of debt, often low-rated corporate loans. Collateralized ...
  2. Selling Out Of Trust

    A term commonly used in the automobile industry to refer to the selling of a ...
  3. Clunker

    A popular reference to the old vehicle traded in under the U.S. government's ...
  4. Cash For Clunkers

    A program that allows car owners to trade in their old, less fuel-efficient ...
  5. Collateral

    Property or other assets that a borrower offers a lender to secure a loan. If ...
  6. Lien

    The legal right of a creditor to sell the collateral property of a debtor who ...
  7. Unsecured Loan

    A loan that is issued and supported only by the borrower's creditworthiness, ...
  8. Subprime Lender

    A type of lender that specializes in lending to borrowers with a tainted or ...
  9. Subprime Auto Loan

    A type of auto loan approved for people with substandard credit scores or limited ...
  10. Annualized Rate

    A rate of return for a given period that is less than one year, but that is ...
Related Articles
  1. Can You Live A Debt-Free Life?
    Credit & Loans

    Can You Live A Debt-Free Life?

  2. APR and APY: Why Your Bank Hopes You ...
    Investing Basics

    APR and APY: Why Your Bank Hopes You ...

  3. Getting A Loan Without Your Parents
    Retirement

    Getting A Loan Without Your Parents

  4. Payday Loans Don't Pay
    Options & Futures

    Payday Loans Don't Pay

  5. Car Title Loans: Good Option For Fast ...
    Options & Futures

    Car Title Loans: Good Option For Fast ...

  6. How To Cash In On Credit Cards
    Mutual Funds & ETFs

    How To Cash In On Credit Cards

  7. A Smart Approach to Student Credit Cards
    Credit & Loans

    A Smart Approach to Student Credit Cards

  8. Start Building Solid Credit At A Young ...
    Credit & Loans

    Start Building Solid Credit At A Young ...

  9. Credit Cards For People With Bad Credit
    Credit & Loans

    Credit Cards For People With Bad Credit

  10. 5 Things You Shouldn't Do During A Recession
    Budgeting

    5 Things You Shouldn't Do During A Recession

comments powered by Disqus
Hot Definitions
  1. Amplitude

    The difference in price from the midpoint of a trough to the midpoint of a peak of a security. Amplitude is positive when calculating a bullish retracement (when calculating from trough to peak) and negative when calculating a bearish retracement (when calculating from peak to trough).
  2. Ascending Triangle

    A bullish chart pattern used in technical analysis that is easily recognizable by the distinct shape created by two trendlines. In an ascending triangle, one trendline is drawn horizontally at a level that has historically prevented the price from heading higher, while the second trendline connects a series of increasing troughs.
  3. National Best Bid and Offer - NBBO

    A term applying to the SEC requirement that brokers must guarantee customers the best available ask price when they buy securities and the best available bid price when they sell securities.
  4. Maintenance Margin

    The minimum amount of equity that must be maintained in a margin account. In the context of the NYSE and FINRA, after an investor has bought securities on margin, the minimum required level of margin is 25% of the total market value of the securities in the margin account.
  5. Leased Bank Guarantee

    A bank guarantee that is leased to a third party for a specific fee. The issuing bank will conduct due diligence on the creditworthiness of the customer looking to secure a bank guarantee, then lease a guarantee to that customer for a set amount of money and over a set period of time, typically less than two years.
  6. Degree Of Financial Leverage - DFL

    A ratio that measures the sensitivity of a company’s earnings per share (EPS) to fluctuations in its operating income, as a result of changes in its capital structure. Degree of Financial Leverage (DFL) measures the percentage change in EPS for a unit change in earnings before interest and taxes (EBIT).
Trading Center