In earlier times those in financial difficulties went to a pawnbroker and pledged a household item or even a garment to get a short-term loan. In today’s North America car title loans are a common example of the kind of asset people use as collateral to secure a short-term loan. If they default on the payments their car can be taken and sold to recover the value of the loan. Before taking this type of loan consider the following:
1. Avoid Confusing a Car Title Loan with a Car Purchase Loan
The car title loan is quite different from the type of loan commonly taken to buy a car. It is a loan based on an evaluation of the resale value of the borrower’s car to the lender. The lender keeps the title of the car (hence the car title loan term) until the loan is repaid. If the borrower cannot repay the loan the bank (or another lender) sells the car to recover their money.