Understanding loans can be difficult, especially with all the different types available to lenders. If you’re struggling to take out a loan because of your credit rating, then there are options out there for you. However, these options often come with negative repercussions. Being aware of the dangers attached to specific types of loans prior to taking them out could save you some serious money further down the road, as well as making your loan a stress-free journey.
What are logbook loans?
A logbook loan is a secured loan that borrowers take out using their vehicle as a form of security. For example lenders take ownership of the car for the duration of the loan by keeping the car’s logbook in their possession, but the borrower is able to continue using the car while they are making their loan repayments.
Loans such as these are good for people who lack valuable assets such as a property to use to release equity as well as for those who are lacking in positive credit scores. While lenders do carry out credit checks, a person’s particular circumstances are usually considered when they apply for the loan and whether they can afford the monthly instalments determines whether or not they are accepted.
With a logbook loan, as well as signing the agreement over the amount of money you will be borrowing and repaying and over what period of time, you will also be asked to sign a bill of sale. A bill of sale is a document that passes ownership of the vehicle over to the lenders in the event that you fail to repay what you owe.
If your car has been purchased on finance, you will not be able to take out a logbook loan against its value. Logbook loans can only be taken out using cars that are valued at higher than £500 and have no outstanding finance on them. This is a legal requirement of loans provided by firms that have registered with the FCA, and any company who has failed to register with the FCA is likely to be operating illegally. With this in mind, take care when choosing who to take your loan out with.
Are logbook loans dangerous?
Taking out any type of loan carries a risk, but loans such as logbook loans generally are particularly high-interest loans and can be incredibly damaging to a person’s financial situation if they are allowed to borrow beyond their means.
Most logbook loans run for up to 78 weeks, but you can pay off your loan earlier than that if you wish. A fee may be added to do so, but a number of companies offer deals where there is no fee so if you think that there is a good chance you’ll pay it off early then search around for someone who does not charge an early settlement fee.
The vast majority of logbook loans carry an APR of around 400%, meaning that if you borrow £1,500 over 55 weeks, you will repay over £4,250. Such a loan carries a high amount of interest and in the wrong hands can be incredibly dangerous, leading to further financial difficulty and repayments spiralling out of control.
If you fail to make repayments on your logbook loan, then because of the bill of sale, your lender is entitled to sell your car as a means of acquiring the money that you owe them. If the sale value accounts to less than the amount of money owed, then the rest of the money is demanded of the borrower.
If they cannot come up with this money, then the lender is justified to take them to court in order to get the additional money. This can seriously affect your credit rating meaning that you might find it difficult to get credit in the future – if your credit rating is already quite poor, this can only be at the further detriment to you.
If you’re unsure on what the best option for you would be as far as a loan is concerned then there are a number of qualified and professional experts who can advise you on how to best deal with any financial issues you may be experiencing.
There are a number of alternatives to logbook loans that you may well find to be much more viable options, such as balance transfer credit cards, personal loans and peer to peer loans. Speaking to a professional will allow you to outline exactly which loans you will be eligible to apply for depending on your financial situation.