A logbook loan is one secured using a vehicle, the same way a mortgage is secured against a house. Therefore, the lender gets to own the vehicle until the borrower pays the loan back. Nevertheless, the borrower continues to use the vehicle as long as they can repay the loan. This type of loan can be expensive and risky, but shopping around is likely to fetch you a good deal. The loans are available on the internet and the high street, allowing applicants to borrow between £500 and £60,000, depending on the worth of their vehicle. It is also possible for applicants to borrow up to 50 percent of their vehicle’s trade value.
Getting & paying off a loan
· Getting a loan
Logbook loans are recommended for people who are unable to borrow money using the conventional means, for example by applying for a personal loan to buy a vehicle. The promise of quick cash and no-credit check makes these loans particularly appealing to customers with poor credit history. To avoid the pitfalls associated with type of loan, it is advisable to keep your eyes open. Normally, the loan is issued by check, which can take several days to be cleared. Some logbook firms facilitate a quick service, but applicants may be charged an administrative fee of up to 4 percent of the loan amount.
· Paying off a loan
A logbook loan traditionally runs for 78 weeks, with the repayment made on a weekly or monthly basis. The regular payments often include the interest until the final month of the contract, when the borrower will be required to repay the principle amount. A borrower can pay back the loan early, although this can potentially lead to early repayment charges. Therefore, it is advisable to check the terms and conditions, once you have confirmed your ability to repay the loan.
The main risks
· High interest
The interest charged on logbook loans can be very high, with the APR (Annual Percentage Rate) on the loan being at least 400 percent. Therefore, if you were to borrow £1,500 over a period of 78 weeks, you will be required to repay £55 every week. This means you would end up repaying a total of over £4,250- accounting for a massive interest of £2,750. Logbook loan companies often justify the high rates of interest to stress that the loan should be utilized primarily for a short-term borrowing solution.
When you take out a logbook loan, you risk repossession if you fall behind with the repayments. Therefore, anytime you sign up for a logbook know, you need to realize your vehicle can be taken anytime, if you default on repayments. The company can sell the car to recover the amount that has been defaulted.
· Debt collection
If the logbook loan company is unable to recover the whole loan amount after selling the vehicle, you can be held responsible for the shortfall. The company can take the matter to court to get you pay the balance.