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The Curious Bag
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A car title loan, commonly called a title loan, uses a person's car to secure a loan. The person is required to pay the entire loan back in one lump sum before the loan expires. If the entire loan is not paid off before the loan expires, the lender will repossess the person's car and sell it to make up the lost money.
Cost
According to Florida Attorney General Bill McCollum, a lender typically loans $250 to $1,500. Some lend up to $10,000.
Duration
Title loans are short-term and usually only last 30 days. If the person cannot pay off the full debt, he can lengthen the term of the loan by paying a fee.
Benefits
Title loans are easier to secure than loans from a bank or credit union. People also receive their loan money quickly, and some title loans are advertised as emergency loans.
Disadvantages
According to Americans for Fairness in Lending, an average car loan title charges an annual interest rate of 300 percent. Because lenders require full payment of the loan in 30 days, people often request extensions, increasing their debt and making it difficult to pay off the entire loan.
Fun Fact
Its name is derived from the car's title, which the lender takes as collateral for the loan.
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