Logbook loans may be highly accessible but it’s not always the best financial product to turn to when the going gets tough. In fact, experts warn consumers from taking out a logbook loan unless truly necessary. Because of its high interest rates and the high risks, logbook loans are recommended only as a last resort.
If you’re planning on taking out a logbook loan, it pays to know what exactly you’re getting into. In this guide, we’ll talk about logbook loans and when is the right time to take them out.
What is a logbook loan?
A logbook loan, as the name suggests, is a type of personal loan that is secured against your car. Your lender takes your car’s V5 or logbook document while you still get to keep and use your vehicle. In general, you can borrow from as low as £500 to as much as £50,000 depending on the make, age and type of your car. The loan is payable at repayment terms starting from 3 months up to 5 years.
If you’re not a homeowner and you have bad credit, logbook loans seem like the perfect solution to your financial woes. But again, there are pros and cons to consider. Make sure you weigh both sides well before going through with that application.
What are the advantages?
Logbook loans offer three chief advantages for consumers. One is the premise of fast cash. Logbook loans advertise the financial product as one of the quickest ways to obtain money with no credit check needed. As long as you own your car and it fits the bill, you are welcome to apply for a logbook loan and expect quick approval in 24 hours or less.
Because logbook loans do not require credit checks, it follows that the financial is highly accessible especially online. There are now more online lenders offering the financial product which means more accessibility for people who need quick cash.
Another chief advantage, of course, is the fact that it is designed especially for people with bad credit. If you’ve ever been refused a personal loan elsewhere, logbook loans are viable solutions to your pressing financial problems.
What are the disadvantages?
Though it has its advantages, logbook loans also have its disadvantages. This part is very important to understand if you’re taking out a logbook loan anytime soon. To make the personal loan and count and to make the most out of it, the advantages should always outweigh these two chief disadvantages.
One of the reasons why financial experts discourage consumers from turning to logbook loans is because of the extremely high cost. Compared to traditional loans, logbook loans are many times more expensive. In general, the financial product charges about 400% APR which is a lot of interest rate to pay.
Then there’s the high risk you have to deal with when taking out a logbook loan. Because the loan is secured against your car, your lender has the “bill of sale” authorizing them to repossess your asset in the event that you can’t keep up with your monthly dues. Once your car has been repossessed, they can sell it to cover for your outstanding balance. If the money isn’t enough to cover for your balance, you’ll still be required to pay for the rest of the owed amount.
When is the right time to take them out?
Considering the pros and cons, it is clear that logbook loans are ideal if you need quick cash but only if you can handle the cost and risks. This is also if you’ve already check other cheaper alternatives.
Basically, there are three factors to consider that will ensure that your logbook loan makes perfect financial sense. First is your credit score. If you have bad credit, have been struggling to get approved for a traditional personal loan and have checked alternatives, logbook loans are worth considering as your last resort.
Another factor to keep in mind is the purpose of the loan. Considering the high costs attached to logbook loans, you need to make sure that the reason behind this financial move is as valid as can be. By valid, it means that it should be for financial emergencies like paying for medical bills or for major investments like home renovation or starting up a business. If you’re taking out a logbook loan to fund a vacation then you might want to rethink your decision.
Finally, you need to make sure that you can afford the monthly repayments. Remember that there is the risk of repossession. If you don’t want to put your vehicle at risk, you need to borrow only what you need and what you can afford.