A title loan company provides loans to customers by using a car title as collateral. These businesses can be profitable as interest is assessed to the loans, but they can also be risky because of default. Starting a title loan company requires a thorough knowledge of state lending restrictions.
Assess your goals. A profitable title loan business is based mostly on sound loans; that is, by lending to customers with a shaky credit history simply to get the upfront fees and a small amount of interest (in other words, expecting a default) you set up a default trend that will sink your business. Instead, market your business to customers in need of cash due to a temporary hardship, not a permanent one.
Analyze the title loan business in general and specific to your geographic area. Investigate the types of vehicles commonly used as collateral and why. Determine how mileage affects value and how certain brands retain resale values. Research interest rates offered at competing businesses and determine how much a new business could charge without losing customers and remaining profitable.
Seek advice from others in the business. Remember, competitors in the area will not talk to a potential new title loan business owner; instead, check online for businesses in other areas that will not be in direct competition with your business. Ask questions pertaining to default rates based on credit scores. Also ask these business owners about how a brand of car can relate to the length of a loan offered.
Consider a franchise. Some successful title loan companies have established franchise programs that work from the same business plan.
Write a business plan based on the information garnered through research. Develop a spectrum of vehicles that you are comfortable collateralizing (based on mileage, brand and Carfax reports), account for up-front costs like rent, supplies (computers, furniture, lending software). Remember to think long-term by seeking profitable loans from customers with strong credit histories, thereby reducing your default rate.
Based in Eugene, Ore., Duncan Jenkins has been writing finance-related articles since 2008. His specialties include personal finance advice, mortgage/equity loans and credit management. Jenkins obtained his bachelor's degree in English from Clark University.