How Does a Car Title Loan Work?

A car title loan allows you to use your current vehicle title as the collateral for a personal loan. In nearly all cases, you will need to own the vehicle outright for this to be an option. If you have an outstanding auto loan, then the title to your car is not truly yours to collateralize.

Benefits of a Car Title Loan

Secured loans are typically much cheaper than unsecured loans. If you need financing, using an asset like your car in order to gain the financing will make the loan cheaper. Further, some people may take these loans out as a credit building exercise. Those individuals who did not take a car loan to purchase their car can use the title to take another loan and build their credit score.

Risks of a Car Title Loan

You will be placing your asset at risk by using it as collateral; if you default, your car may be seized. You should also be aware the organization now holding your car title may request additional insurance on the vehicle to protect the asset. If you default on the loan and your vehicle is seized, the company will sell it to settle the debt. If the car is not worth enough to settle the balance at that point, you may be responsible to pay the difference. 

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