All of us have heard and are familiar with the personal loans, the car loans, house loans etc. but this Title loan is certainly a new term for many of us and here we have tried explaining this special loan that is a popular one across the USA and people are being greatly benefitted with this kind of borrowing.
A title loan is nothing but the pledging of a title of a vehicle, a car or a two-wheeler, to the lender in return for an amount of money lent by him as borrowings. Here it is just the title of the vehicle that is transferred to the lender and the vehicle still remains with the borrower. All the documents related to the title ownership of the vehicle should be transferred in the name of the lender and it literally acts as a collateral for the loan amount borrowed. So when the entire amount is repaid, the title transfer agreement gets canceled and all the documents of title are returned back to the borrower who is the actual owner of the vehicle. But in case of a default, the lender has all rights to take possession of the vehicle, either sell it to a third party for an amount equal to the money lent or use it for his or her personal needs.
These are generally short-term loans that are offered at higher rates of interest, higher than even the other usual loan types. Here the lender does not go by what the borrower’s credit report says but just lends money taking into account the condition and value of the vehicle that is pledged. The reason for the exorbitant interest rates is the underlying risk in lending money to a person whose financial status and credibility is kept confidential while lending loan and hence the lenders feel that they need to be compensated well in case of any default by a borrower who is already into a heavy financial crunch.