Understanding Title Loans

A title loan, also known as a car title loan, or pink slip loan, is one type of secured loan in which the borrowing party uses the title to their car as the collateral against the loan.  Lender's will put a lien on the car's title, and the lender will get a personal loan in exchange for the hard title to their car, to be returned to them upon full repayment of the loan.  A car title loan is generally a short-term loan, and has a higher interest rate than some forms of credit, however carries a much lower interest rate than any sort of unsecured loans.

Credit Score and Credit History don't play as large a part in a title loan, because the collateral of the car is usually sufficient to cover the cost of the loan.  The interest rates tend to be high on these sorts of secured loans vs other types of secured loans due to the high rate of default on this type of loan, as they are generally used by people who are already in bad financial positions.  Title loans can be approved quickly, and for small sums of money as small as 100 dollars, whereas most lender's have a minimum loan amount, especially to people with bad credit.

Title Loans first started appearing early in the 90's and has gained momentum with people with bad credit or no credit to speak of.  Similar in nature to payday loans, but with car titles instead of paychecks. 

The process starts with the borrower contacts a lender, either online or at a brick and mortar lending location.  The borrower will bring ID with them to verify their identity, usually a Driver's License or State ID is required by the lender to process a title loan. They will sometimes also require proof of income, a piece of mail to prove residency, a car registration notice, a car title in the borrower's name, references, and current car insurance.  Not all states require all of these things to secure a loan, but it is a safe bet to bring them if able.

The loan amount is determined by the collateral being used for the loan, which in a title loan would be the vehicle itself.  Lender's will generally offer up to half of the resale value of the car.. The car must have no previous liens on it, and the borrower must have full ownership of the vehicle, with no outstanding financing. Most lender's also require the car to be insured, although this is not always the case. 

Interest rates vary dramatically from loan to loan, and especially from state to state.  They can vary anywhere from 30% to 100% or more.  Payment schedules on the following loans will vary from lender to lender, but generally the borrower will at least need to pay the interest due on each pay date.  When the loan duration is completed, the full amount remaining on the loan will be due, however, if the borrower can't pay, the lender will many times put the remainder into a new loan with a new payment schedule.  If the borrower defaults on the loan altogether, the lending company may choose to take possession of the car, and resell it in order to recoup the costs of the unpaid loan.  Generally lender's do not want to do this, and will hold off on selling the car as a last ditch effort to repay their costs. 

Title loans and other types of short term security loans, are a great way to get a loan in a situation where you cannot get approved for a more traditional loan.  Short Term loans such as these provide a means of immediate financial aid in the face of disaster or unplanned hardship, for people who might otherwise be unable to get the funds they need in these situations.

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