With any loan, there is always a risk involved. A lender always takes the risk that the borrower may not repay the money. Banks and other lending institutions put lots of time and effort into examining their potential borrowers. Loan applicants will have their employment history checked, and their credit history carefully scrutinized before a lender will agree to lend any amount of money. There are a variety of different loans in the marketplace including car title loans. Are car title loans risky? Let’s take a look.

What Is a Car Title Loan?

If you are not familiar with a car title loan, it is a short-term loan where you use a vehicle as collateral. More specifically, the vehicle’s title is held by the lender in exchange for a loan. Typically, car title loans are for a few hundred to a few thousand dollars. Embassy Loans, a leading auto title lender, has helped tens of thousands of customers gain access to much-needed funds. Unlike the processing of loans from banks and credit unions, a car title loan can be completely processed with an hour in most cases. Borrowers still maintain the ability to use their vehicles while they repay the loan.

Similar Loans and Default Rates

Loans, like payday loans and pawnshop loans, are similar to car title loans.  They are both short-term loans where a borrower offers collateral; in one case, a paycheck serves to cover the loan, and in the other, a piece of property is used. Both payday and pawnshop loans have relatively high rates of default. Pawn shop loans default at a rate of almost one in three. Roughly 15 percent of all payday loans are not repaid. Car title loans have a default rate of approximately 11 percent, less than both payday and pawn shop loans but higher than that of the average mortgage or car loan.

The Risk of Repossession

For the borrower, there is the danger of having one’s vehicle repossessed. If a borrower does not make payments to repay the loan, the lender has the right to take possession of the vehicle. Repossession is the last thing that either the lender or the borrower wants to happen. When a borrower takes out a car title loan, the lender places a lien on the title. If the owner of the vehicle fails to repay the lender, the lender then has every right to take the vehicle and attempt to sell it as a means of recovering its losses.

Yes, there are risks involved with a car title loan just as there are risks with any other type of loan. If a borrower makes payments on time, both the borrower and the lender are happy. The lender makes money, and the borrower keeps his vehicle.