A car title loan, or simply title loan, is a loan where the borrower provides their car as collateral. If the borrower defaults, then the lender may take possession of the car. This makes the loan less risky for the lender, and may permit the borrower to obtain a lower interest rate than they could get on an unsecured loan.
These loans are typically short-term, and tend to carry high interest rates. They are therefore used mostly by subprime borrowers with few alternatives.[1] In addition to verifying the borrower's collateral, many lenders verify that the borrower is employed or has some other source of regular income. The lenders do not generally consider the borrower's credit score. In this sense, title loans are broadly similar to the (typically unsecured) payday loans, and sometimes offered by the same non-bank lenders.
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