What is a car title loan and how does it work?

Question

What is a car title loan and how does it work?

Answer 1

You give the loan company the title to your car for collateral and they give you the loan. When you pay off the loan, then you get your title back. If you fail to pay back the loan, then they sell your car to get their money back.

Answer 2

One small detail.  They do not sell your car to pay off the loan.  They take your car to pay off the loan.  Then it's their car and they can sell it for whatever they can get.  This sounds like a small detail, but there is a big difference.

In a home foreclosure, if you have a 75000 loan and they sell your house for 125000, they owe you 50000.  In a title loan, if the car has a blue book of 20000 and they loan you 5000, and you don't pay, they get the car and the loan in canceled.  If they then auction it for 17000, you don't see any of the extra 12000.  They love it when people don't pay, and are ready to jump on you for being a little late.

Answer 3

The lender loans you money based on the value of your car.  You sign over the title.  As long as you make the payments on time you keep the car.  Goof up to much and they will come and get the vehicle and will sell it top ay the balance of the loan.

These loans usually carry very high interest rates and are kind of a last resort kind of thing.  I know a couple of people that did this kind of loan and wound up paying 4 or 5 times what they borrowed.

Good luck!