Title loan

In the United States, a car title loan, is a type of secured loan where borrowers can use their vehicle title as collateral. Borrowers who get title loans must allow a lender to place a lien on their car title, and temporarily surrender the hard copy of their vehicle title, in exchange for a loan amount. When the loan is repaid, the lien is removed and the car title is returned to its owner. If the borrower defaults on their payments then the lender is liable to repossess the vehicle and sell it to repay the borrowers’ outstanding debt.

These loans are typically short-term, and tend to carry higher interest rates than other sources of credit. Lenders typically do not check the credit history of borrowers for these loans and only consider the value and condition of the vehicle that is being used to secure it. Despite the secured nature of the loan, lenders argue that the comparatively high rates of interest that they charge are necessary. As evidence for this, they point to the increased risk of default on a type of loan that is used almost exclusively by borrowers who are already experiencing financial difficulties.

Most title loans can be acquired in 15 minutes or less on loan amounts as little as $100. Most other financial institutions will not loan under $1,000 to someone without any credit as they deem these not profitable and too risky. In addition to verifying the borrower's collateral, many lenders verify that the borrower is employed or has some source of regular income. The lenders do not generally consider the borrower's credit score.

Title loans first emerged in the early 1990s and opened a new market to individuals with poor credit and have grown increasingly popular, according to studies by the Center for Responsible Lending and Consumer Federation of America. They are the cousin of unsecured loans, such as payday loans. Since borrowers use their car titles to secure the loans, there’s risk that the borrower can lose their vehicle by defaulting on their payments due to personal circumstances or high interest rates, which almost always have APR in the triple digits—what are sometimes called “balloon payments”.

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Wikipedia