An auto title loan uses a vehicle you already own as collateral for borrowing. It differs from a purchase loan. These products can be short term and expensive, and the lender may be able to repossess the vehicle if repayment fails.

How the borrowing arrangement works

Read the payment schedule and collateral conditions. Ask what ownership documents, access or equipment the provider requires. Verify the lender and the applicable rules in your state before handing over documents or agreeing to security over the vehicle.

Costs and repayment

Compare APR, finance charges, add-ons and any extension terms. Include the practical cost of losing transportation when assessing the decision. A payment arrangement with the biller or another small-loan option may be worth investigating first.

Preparing to compare offers

• Ask which title, ownership, lien and vehicle-inspection documents are required.
• Request the exact payoff date, finance charge and consequences of a missed payment.
• Check restrictions involving keys, tracking equipment or insurance before accepting.

Questions worth asking

• Could I still get to work without this vehicle?
• What happens after a missed payment?
• Does an extension leave the principal unpaid?

Repossession may not settle the full balance

Depending on the agreement and state rules, a sale can leave a balance or other charges. Ask the lender how this is handled and consult your state consumer-protection office for the rules that apply.

Do title loans buy a car?

Usually they provide cash secured by an existing vehicle. An auto purchase loan has a different purpose.

Could I lose the vehicle?

Yes. Repossession is a material risk when the vehicle secures the debt and payments are not made as agreed.

BorrowCompass provides a guide to this topic at how to read a vehicle title loan agreement. Review current provider terms before making a borrowing decision. BorrowCompass does not issue loans or guarantee approval.