What Are Title Loans, and What Are They Not?

title loan

Car title lending has been an infamous alternative to the typical personal bank loan. And the detractors of title-pledged financial products do have valid points.

Title lending is often the subject of criticisms for its insanely high interest rates even if the business model’s naysayers know very well that such fees are compensation for accommodating the least creditworthy consumers.

But the perilousness of title loans does not solely stem from their expensive nature. What makes them even riskier is a mystery. Despite being around for so long, many people still do not fully understand what they and how they work.

Signing off without truly knowing what you are getting into is an unfailing way to make title lending work against you. In light of the common misconceptions about them, let us talk about the things that title loans are not to comprehend their mechanics.

They Are Not Payday Loans

You might hear payday loans and title loans used interchangeably, but mistaking one for the other is dangerous.

Collateral is what distinguishes title loans from payday loans. The word “title” in their name refers to the car title, which is used as security.

That is why you do not have to surrender your keys and/or vehicle until you repay what you owe. You are free to use your car during your title loan’s term, and you can avoid repossession as long as you roll your debt over for another month until it is paid in full.

Unlike title loans, payday loans are unsecured. If you take one out, you will be required to leave a postdated check your lender can cash in at the end of the term.

They Are Not Illegal Products

Title loans are not legal in the entire United States, but they are adequately regulated in the states they are allowed. Although title lenders face regulatory threats from time to time, their critics fail to outlaw them.

No matter how you feel about title loans, they play a significant role in American society, particularly in the Hoosier State. They provide instant money to millions of consumers rendered helpless and desperate by the mainstream banking system. Without title loans, more Hoosiers might fall victim to loan sharks, the real predators in the lending world.

They Are Not Installment Loans


Generally, you can settle your title loan balance only with a lump-sum payment. No, you can’t repay what you owe on installment. You might not realize that everything has to be paid off on the due date, or else an automatic rollover might kick in. Many title loan horror stories begin this way.

They Are Not the Best Emergency Fund Alternatives

Even a title lender will not claim that a single-payment loan with a possible three-digit annual interest rate is your debt of first resort in case of an emergency. You should exhaust all of your options before you should consider a title loan. Only when nothing else could bail you out of your financial trouble should you talk to a title lender.

The publicized dangers of title loans are not meant to repel you. Instead, they act as a reminder that you should exercise due diligence to calculate the risks of acquiring such debt when comparing it with traditional personal loans.

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