What you need to know about logbook loans
If you need to get your hands on some money quickly there are a number of different types of loans you can potentially take out. A logbook loan is a loan that is given to you by a lender using your vehicle as security. For the duration of the loan the lender owns your vehicle, but you are still able to drive it as normal. However you should note that you will have to hand over the registration certificate, or the logbook, to the lender until you have repaid the loan. Most logbook lenders now secure loans against cars and most types of older cars, motorbikes and commercial vehicles such as vans.
What are the benefits of a logbook loan?
If you need cash quickly for an emergency then a logbook loan might be what you need, especially if you have a poor credit rating and you do not have the option of going to a mainstream lender in order to find the money. You can potentially borrow between £500 and £50,000, but the amount you will be able to borrow will depend on the value of your vehicle. However you should note that some lenders will only allow you to borrow up to 50% of the value of your car. This type of loan allows you to get hold of cash quickly, with no credit checks and you can find them both on the internet and also on the high street. You should also be aware that these loans are generally paid to you by cheque and so you should allow up to four days for this to clear. If you want to have the money paid directly into your bank account you will have to pay up to 4% of the loan amount for the privilege.
How long do I have to repay the loan?
A logbook loan typically lasts for 78 weeks and the way that most repayments work is that you pay interest only for the term of the loan and then the final payment you make is the repayment of the original loan amount. You should expect to pay interest at around 400% APR so you do need to be aware that you will be paying significantly more in interest than your loan value in total.
Things you need to be aware of
Until you have made every repayment on your loan there is the possibility that you could lose your car if you find that you cannot make your repayments on time. In order to qualify for the loan in the first place you will need a vehicle that has a typical value of at least £500 and you will also have to own it outright. You also need to be aware that the interest rates for logbook loans are much higher than other types of unsecured loans due to the perceived risk to the lenders as they do not conduct credit checks in order to assess whether you are likely to pay the loan back on time. Some lenders also do not accept Direct Debit so be prepared to keep a careful track on how much you still owe.
Why is a logbook loan suitable for people with bad credit?
There are a number of reasons why you might turn to a logbook loan in order to raise the cash that you need. The main reason why this type of loan is attractive to people with bad credit is because you do not have to undergo a credit check in order to be accepted for the loan. As you the borrow provides security in the form of your car this means that logbook lender are more likely to accept loans from those with a not so perfect credit history or who have a low credit score.
Understand what your loan means
Even if a logbook loan is your only option, that is no reason not to research exactly what you are getting out of the deal. Logbook loans allow you to get your hands on cash relatively quickly but you should be aware that many will provide your cash in the form of a cheque and this will add in a delay of around four days. If you wish to get your money instantly paid into your bank account or as cash in hand you are likely to have to pay an additional fee, of up to 4% of the total loan amount. So if you can wait an extra few days it will cost you less.
As part of your loan agreement you will also have to give your registration document to the lender as they effectively take ownership of your vehicle for the duration of your loan. However you are able to continue driving your vehicle as usual, but be aware that you will not be able to sell it until you have paid off the entire loan.
What sort of interest rates do these loans have?
As you might expect, these loans attract very high levels of interest due to the fact that they are high risk and are offered to people with bad credit ratings. A standard logbook loan will have an interest rate of around 400% APR and it will have a term of 78 weeks typcially. In many cases you will make interest only payments for the duration of the loan and pay off the original lump sum at the end. However there is nothing to stop you from paying off the loan early if you are able.
Understand the risks
A logbook loan uses your car as security for the loan so if you do miss payments you are at risk of losing your car, so try to plan as far as you can financially so that you have the repayments available each week. It is very important that you only borrow as much as you are able to comfortably repay over the term of the loan.
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