Definition
A title loan is a type of secured loan that uses a previously paid-off vehicle as collateral.
Analysis
Low income consumers frequently will utilize title loans as an alternative to payday loans. Title loans tend to have much lower interest and much higher loan amounts than payday loans, albeit at a price that is much higher than traditional loans.
Title loan retailers advertise that all a consumer needs to do is bring in the pink slip to their car in order to obtain a loan. However, this merely amounts to refinancing a car for far less than it is worth, and at a rate substantially higher than most car loans.
Title loans are one way in which desperate consumers frequently lose a car that they owned outright prior to the loan. They are a form of fringe banking.
