Title loan.
In plain English
A title loan is a short-term loan secured by the title to your car, meaning the lender holds a claim on the vehicle until you repay. You usually keep driving the car, but if you miss payments the lender can repossess and sell it. These loans are easy to get because they don't check your credit much, but the cost is high: according to the Consumer Financial Protection Bureau, the typical title loan carries an effective APR (the true yearly cost of borrowing) of about 300 percent. They are typically due in about 30 days, and many borrowers roll them over again and again.
01Why it matters
You can lose your only way to get to work over a few hundred dollars, and the repeated rollover fees can end up costing more than the car is worth.
02The math, step by step
You borrow $1,000 against a car worth $4,000. The lender charges a monthly fee that works out to an effective APR the CFPB pegs at roughly 300 percent for a typical title loan (as of CFPB research). If you can't pay the full $1,000 plus fees in 30 days, you roll it over and pay the fee again. Miss enough payments and the lender repossesses the car and keeps any value above what you owed.
03What this is NOT
An auto loan helps you buy a car and is paid over years at a normal rate. A title loan borrows against a car you already own, at a far higher rate, for a few weeks. If you fall behind, your first step is to call the lender about a payment plan and check whether your state caps title-loan rates.
Plain-English answers from our glossary. Receipts included. Never advice.
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