In simple terms, a title loan, also known as car title loan, auto equity loan, vehicle title loan, auto title loan, or pink slip loan, allows you to augment your income by having your car serve as collateral for a loan.
How a Typical Title Loan Works
To start, you bring in your car along with its original title to a lender and then have them appraise its current value. The lender will use your car’s equity to determine the loan amount offered to you; unlike a collateral loan in pawnshops, you actually get to keep your car during the loan period you and the lender agreed upon. Once you default on your loan however, the lender will own your car and the sell it off to get back the loan amount you borrowed.
While a title loan may seem like a double-edged sword, it is a viable option for when you desperately need funds but are not capable of qualifying for a loan through traditional lenders or even a cash advance on your credit card. If you have a less than perfect credit history, but legally own a valuable car and have regular income, a car title loan can make sense in the event of emergences or other costly incidents when you can’t obtain a loan anywhere else.
On Title Loan Risks and Lenders
A car title loan is only “bad” when a lender is not exactly forthcoming regarding the specific details of the loan’s terms. While the interest rate on a vehicle title loan can be significantly higher than traditional loans, this usually serves as assurance to the lender since majority, if not all lenders, don’t check your credit; much less ask about your credit history.
Yes, title loans can be risky when you default on them, but lenders are giving you credit with no guarantee that you’ll actually make good on your repayments. They are banking on the fact that you only have your car as collateral and the potential amount they can get for your car when you fail to pay off your loan. Bottom line — since title loans are not cheap, you have to know exactly what you are basically getting into and research your options well since there are many reputable title loan lenders out there as there are unscrupulous ones.