Have you ever been desperate for money? Almost all of us have at one point or another. But where do you turn when your checking account is all zeros and your credit cards maxed out years ago?

Maybe an innocent looking commercial suggested a title loan. Or maybe a well-meaning “friend” mentioned that a title loan could get you out of a jam. But as you might have guessed from the “title” of this article, once you read the fine print, these loans are downright scary.

So What Exactly Is a Car Title Loan Anyway?

A car title loan company gives you money based on the equity in your vehicle. Since your car is collateral for the loan, if you fail to make your payments, the bank is allowed to repossess your vehicle.

That seems like a fair arrangement, right? If you think so, then read on.

What’s So Bad About a Car Title Loan?

What makes a car title loan so dangerous is the typical 300% annual interest rate. By the time you pay it off, you may end up paying 3 or 4 times the amount of your original loan.

Also, if you miss a payment on even a small car title loan, the bank is still allowed to repossess your entire vehicle. So even if you have $10,000 equity in your car, you could lose it all simply by defaulting on a tiny $500 loan.

Why Aren’t They Illegal?

Frankly, car title loans are illegal in many states. But if you happen to live in a state where they are not, then how are they justified?

Banks that provide car title loans argue that the high interest rates are necessary because they are lending money on a used car that depreciates quickly. This may be a legitimate argument, but it also may be unfair to consumers to allow such loans to exist in the first place.