Auto title loans are designed to provide quick, convenient access to credit for those who may be unable or unwilling to use credit cards or qualify for a traditional loan from a bank or other lender. Because of this, title loans can be both useful and necessary, especially in an emergency situation.

Like all forms of credit, however, this type of loan can carry real risks for borrowers who do not take the time to fully understand their obligations and how this type of vehicle loan actually works. If you are considering an auto title loan for the first time, the following information can help you determine whether doing so is the right choice for your current situation.  

Secured by your equity in your car

As the name suggests, auto title loans use the borrower's equity interest in a vehicle as collateral for the loan. While targeted toward borrowers who have paid for their vehicle in full, and hold clear title, some auto title loan companies will make this type of loan to borrowers who still have outstanding liens on their vehicle. 

Short time frames and high interest rates

Unlike most other forms of installment loans, auto title loans are designed with very short time frames for repayment. In most cases, repayment deadlines are just one month or less from the date on which the loan was taken out. Because the time frame is short, auto title loan lenders charge higher interest rates than those commonly found with installment loans or credit cards. The auto title lender is required by law to disclose the interest amount they are charging, including the annual percentage rate (APR), as well as the total figure that you will be required to repay. 

Drawbacks and inconveniences

Some auto title lenders require borrowers to allow them to install a monitoring device inside their vehicle until the loan has been repaid. This device typically allows the auto title loan lender to determine the car's exact location, as well as enable them to prevent the borrower from starting the car if the loan lapses or becomes overdue.

Prospective auto title loan borrowers should always have a clear plan for repaying the loan within the initial time frame to avoid additional interest, rollover fees, and the potential for losing ownership of their vehicle. 

When considering any auto title loan, prospective borrowers should visit or contact a reputable title loan lender and have a frank discussion about both the benefits and potential risks involved.