A loan provided to a borrower by using his/her free and clear car title as collateral. The potential borrower will be required to have the car's value assessed by the lender. A line of credit is then provided based on that assessment. If the borrower fails to pay back the loan in a timely fashion, the lender has the legal right to repossess the car and auction it off. Title loans can also carry high interest rates and stiff penalties.