DEFINITION of 'Car Title Loan'

A car title loan (also known as an "auto title loan" or simply "title loan") is 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.

BREAKING DOWN 'Car Title Loan'

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%.

Practices Associated With Car Title Loans That Warrant Close Attention

Some lenders may offer car title loans even if there is no clear title. The loans may typically be offered for a funding amount somewhere between 25% and 50% percent of the car’s value. In many cases, such loans may range from $100 to $5,500. However, there can be instances where such loans are in excess of $10,000.

The loan application might be completed online or at a storefront. During the application process, the borrower may need to present the title, proof of insurance, photo identification, and the car. The lender may require a duplicate set of car keys to be made when the application is filed. They might also install a GPS tracker to know the location of the car and a device that would disable the ignition of the car if it becomes necessary to repossess the vehicle. The lender will take possession of the title when the funds are given to the borrower and will be held until the loan is repaid.

Along with the principal balance of the loan, lenders could require additional fees to be paid by the borrower such as a roadside service plan, which further increases the amount that will be due.

If the borrower cannot pay back the loan within the term, the lender might offer to rollover the debt into a new loan that usually will include new fees, charges, and a higher interest rate. This process could continue, with the borrower increasing their debt to the point it is impossible for them to repay the loan. At that point, the lender may decide to repossess the vehicle.

RELATED TERMS
  1. Unsecured Loan

    An unsecured loan is a loan that is issued and supported only ...
  2. Collateral Value

    A collateral value is the estimated fair market value of an asset ...
  3. Loan Register

    A loan register lists when the loans are due, recorded in chronological ...
  4. Origination

    Origination is the process of creating a home loan or mortgage.
  5. Loan Stock

    Loan stock refers to common or preferred stock shares that are ...
  6. Rule of 78

    The Rule of 78 is a method used by some lenders for calculating ...
Related Articles
  1. Personal Finance

    Car Title Loan Requirements

    Here's a list of what you need to qualify for a car title loan. Most important: having sole ownership of your car with no liens.
  2. Trading

    Car Title Loans: Good Option For Fast Cash?

    These loans provide fast cash, but they could leave you deeper in debt - and without a car.
  3. Personal Finance

    How To Apply For a Personal Loan

    Learn about different avenues for applying for a personal loan, and learn valuable tips to help you get your personal loan application approved.
  4. Personal Finance

    Getting a loan without your parents

    Do you want to receive a loan without the help of your parents? Use these five tips to finance your dreams without banking on a second signature.
  5. Managing Wealth

    When Are Personal Loans a Good Idea?

    You never want to borrow money for frivolous reasons, but these five circumstances might warrant it.
  6. Personal Finance

    Should You Lend Money to Family or Friends?

    Find out how loaning cash to help family or friends can put a strain on your relationship and your bank account. Learn how to make family loans safer.
  7. Personal Finance

    College Loans: Private vs. Federal

    Not all student loans are the same. Learn the difference between federal vs private student loans.
  8. Personal Finance

    Personal Loans: Consider These Alternative Lenders

    Looking for an alternative source of financing for a personal loan? Take a look at these companies.
  9. Investing

    Financial Institutions: Stretched Too Thin?

    Find out how to evaluate a firm's loan portfolio to determine its financial health.
  10. Retirement

    When Are Mortgage Lenders Better Than Banks?

    Individuals seeking a mortgage loan should consider factors or circumstances that may make a mortgage lender a better choice than a traditional bank.
Trading Center