In these days of difficult economic times and a dwindling job market, many people are turning to loans to get by financially. However, if your credit is less than stellar, your options are limited. You may find that one of your few options is title loans. What is a title loan and how does it work?

Title loans involve the title or ownership of your vehicle. You must own your car free and clear, and there cannot be any liens against the vehicle for any reason. When you borrow money from and auto title lender, you give up the title and thus full ownership of your car in exchange for a loan in a specified amount. You can still drive your car as long as you are making the monthly loan payments.

Auto title lenders are typically found near payday loan stores. Hence, these types of loans are somewhat shady and carry a lot of risk. A car may be worth $15,000 and used to secure a $1,000 loan. If the loan is defaulted on for any reason, the car belongs to the lender. That is quite the return on investment for the lender. However, the borrower is left out in the cold with no recourse of action. These types of loans are illegal in many states.

There are a few alternatives for borrowing money if your credit is less than perfect. Although, equally as shady, one option is a payday loan. While it is still considered predatory lending, you will not lose your vehicle should you default on a small loan. It is important to bear in mind that many of these places can charge in excess of 1,000% interest.

Should you find that you still need to use your vehicle as collateral for a loan, check with legitimate banking institutions prior to getting a title loan. In many cases, banks will still put a lien against your title. However, it will be for the amount of the transaction only rather than for the entire vehicle.

Getting a title loan should be a last resort in a financial shortfall. If find that you must use this route, make sure to have your proof of income, insurance, license, and your title. These will be needed before the loan can be enacted. The sole benefit of these types of loans is that you get your money quickly - sometimes within 24 hours.