With borrowers struggling to avail a personal loan from major lenders, the situation paved the way for logbook loans to become increasingly more in demand across UK. The financial product is especially attractive for borrowers with bad credit. Since there is no credit check required, it’s no surprise why more and more people are resorting to the loan product to meet a wide range of personal and financial needs.
If you’re a car owner and you’re thinking of taking out a logbook loan, here’s a smart guide to help you make the right borrowing decision.
Logbook loans are specifically offered for people who are struggling to get a personal loan elsewhere. If you have a poor credit history and your loan applications have been rejected, then this type of loan product is worth considering.
To be eligible for a logbook loan, you just need to be a car owner. The car must be free of any financing and it should be registered under your name. You’d need the vehicle to use as security. This means you’ll be borrowing against your vehicle’s value. Depending on said value, you can borrow anywhere from £500 up to £50,000 at repayment terms from 12 months up to 36 months.
When you take out a loan against your vehicle, what happens is that your lender will require you to submit the car’s V5 document along with other requirements such as the MOT certificate and insurance details. Your lender will also need you to provide proof of income, proof of identification and billing details.
Once approved for a logbook loan, your lender will keep the documents and you get to keep your vehicle. This means that temporary ownership belongs to your lender. As per the “bill of sale” document, you agree to the terms of repossession. In the instance that you cannot repay the monthly dues, you risk losing your car to repossession.
Logbook loans may be easy to avail but there’s another downside in addition to vehicle repossession. The cost can be pretty steep considering that there’s no credit check involved. The fact that lenders are taking higher risks by catering to borrowers with bad credit, they compensate for said risks through raising the interest rate.
Interest rates vary from lender to lender and deal to deal. On average, the representative APR is somewhere at 400%. Compared with traditional personal loans, the cost is definitely way more expensive. Compared with other unsecured loans, however, logbook loans offer a far more favorable price for borrowers. To know more about APR and how it affects your loan’s cost, Money Saving Expert explains it well.
Weighing the pros and cons of the financial product, you’ll see that logbook loans are not always the best option for everyone. This doesn’t mean that you shouldn’t consider the loan product just because of the high cost. Most financial experts may tell you to steer clear from logbook loans because of the high risks involved. They have a point too. But then there’s also your bad credit score to consider.
If you’re poor credit rating is getting in the way of your loan application’s approval, it might help to consider logbook loans as your last resort. That is, apply only for a logbook loan once you’ve exhausted other cheaper alternatives. And when you do apply, bear in mind that you’ll be putting your car at risks. To avoid repossession, it’s crucial to plan your borrowing and payment schemes from the get go.