A title loan is a secured loan that uses the customer's vehicle title as collateral. The amount is tied to the vehicle's value, and the lender can repossess the vehicle if the loan is not repaid.
A title loan, also called a car title loan or auto title loan, is a short-term secured loan in which the customer pledges the title of a vehicle they own as collateral. The loan amount is generally based on a portion of the vehicle's appraised value, and the customer usually keeps driving the vehicle while repaying. Because the title secures the debt, the lender may repossess and sell the vehicle if the customer does not repay according to the terms. Title loans are often short-term and may be renewed. The opposite arrangement, with no asset pledged, is an unsecured loan such as a signature loan.
To take a title loan, the borrower usually must own the vehicle outright or have significant equity in it, and the lender keeps the title or records a lien on it while the loan is open. Some lenders also ask for a spare key. The amount offered is based on the vehicle's value rather than on the borrower's income alone.
Many title loans are short-term and due in a single payment, while others are structured in installments. State law decides whether title loans are allowed and how they are priced, so the terms can look very different from one state to the next, and the agreement is the place to confirm what happens if a payment is missed.
Because the amount rests on the vehicle's value, the review of income can be lighter than for an unsecured loan, which is worth keeping in mind: the lender is protected by the car even if the payments turn out not to fit the budget. Borrowers comparing options usually weigh the total cost of each in writing and what would happen to their transportation if payments became difficult.
An example
A borrower who owns a paid-off truck needs money for a medical bill. A title lender inspects the truck, offers an amount based on its value, and keeps the title while the loan is open. The borrower keeps driving the truck. When the balance is repaid, the title is returned. If the balance is not repaid as agreed, the lender may repossess and sell the truck under the agreement and state law.
Common misconceptions
Myth: You have to hand over your car to get a title loan.
In fact: The lender holds the title or a lien, not the vehicle. Borrowers usually keep driving the car while repaying.
Myth: Losing the car is the worst possible outcome of a title loan.
In fact: Depending on state law, the borrower may still owe a remaining balance after repossession and sale, as well as repossession costs.
Myth: A title loan is approved on income, like other personal loans.
In fact: The amount is driven mainly by the vehicle's value, because the vehicle title is the security for the loan.
What to check
- Whether the lender keeps the title or records a lien.
- How the amount offered is set.
- What happens if a payment is missed.
- Whether you could owe money after a repossession.
How this applies at Desert Rock Capital
Desert Rock Capital does not make title loans. None of our loans uses a car title, a lien on your home or any other asset as collateral; your signature secures the loan. We review your income and ability to repay, with no credit check, and loans run from $100 to $3,000 with fixed biweekly payments.
Based on our loan requirements, loan amounts and application pages. Your actual terms are in the loan agreement.