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How do car title loans work?
In my town, we've had a couple of car title loan shops open up. I see ads for them all the time. How do car title loans work?
Lauren Smith · Updated on
Reviewed by Shannon Martin, Licensed Insurance Agent.
Car title loans work by using a person’s car title as collateral to create a secured loan. As they’re comparable to payday loans, title loans are infamous for their high-interest rates and short-term lengths, making them illegal in many states.
A car title loan, unlike other loans, doesn’t use your credit score or history. Instead, the lender uses your car title to secure the loan.
When you get a title loan, the lender puts a lien on your car. If you can’t pay them back within the agreed upon time, usually 15 to 30 days, they can legally repossess your car.
Due to the predatory nature of most title loans, you should only consider one as a last resort. In most situations, a personal or short-term loan from your bank or credit union is a better option if you need additional funds.
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