To get the loan, you have to put something up as collateral. This gives the lender a safety net because they can reclaim that item if you are not able to pay the loan back. Those with bad credit cannot use their history in their favor, but they can put up the title of a car as collateral. If you do this and you do not pay it, you lose the car. However, if you do pay it back like you plan to, which the vast majority of people do, you lose nothing. You just pay off what you owe and then you get the title back. You can use the vehicle the entire time.
The benefit of this is that anyone with a vehicle can have some leverage for a small loan. When you take out a mortgage, the house is used as leverage, but smaller loans may not have that option. If you do not have good credit, you are going to be denied by most lenders. The willingness to use your vehicle gives you the upper hand again and allows you to prove your trustworthiness to the lender.
source: 20smoney.com
