Title Loan Definition

A title loan is a usually small, short-term loan obtained from a financial institution by using an automobile’s title as collateral. If the borrower defaults on the loan, the financial institution can seize and liquidate (e.g., sell) the automobile to satisfy the outstanding debt.

Title loans are offered only if the borrower owns the automobile outright; if any payments remain on the automobile it cannot be used. Title loans are usually offered only for about one-half or less of the automobile’s value. Title loans carry annual interest rates of between 36% and 300%, making them a particularly costly way to borrow money. Title loans are illegal in some jurisdictions.