Why You Should Consider Logbook Loans as an Option of Last Resort

While loan options in the UK keeps growing, some of them are very expensive. Logbook loans are preferred by many people because they take a very short time to process, do not have background checks, and personal credit score is not a factor. However, they are very costly and come with a lot of risks. This post outlines five reasons why a logbook loan should only be used when other alternatives are exhausted.

Logbook loans are very costly

When you sign for a logbook loan, be prepared to pay a very high interest. You can get anything from £300 to £100,000 depending on the value of the car and lender. Lenders only give 50% of the current value of your vehicle but charge very high interest such that you end up paying between 100% and 400% annual percentage rates (APR). For example, if you get a loan of £1000 at 300% APR, you will repay a total of £1960 on a 12 months duration. Therefore, before going to pay such a high-interest rate, make sure to exhaust other options that charge interest rates of as low as 5% APR.

You literally lose ownership of the car until the debt is cleared

Once you sign the agreement, the car no longer belongs to you until the debt is cleared. You are required to surrender V5 (the vehicle registration document) to the lender and allowing him to take it in the case of default. Your car is tied such that you cannot sell or even use it as collateral in a bank. Despite the ownership having moved to another person, you are still required to maintain the car in top condition.

This can cause stress and anxiety especially if you have a lot of attachment to the car. For example, if it is the first car bought from your savings or was inherited from parents, ceasing ownership can be very emotional. The situation could get worse if you default and the lender moves on to confiscate and even sell it.

The logbook loan sinks you deeper into credit

Many people turn to logbook loans because their credit score is very low and they cannot loan at banks. If your poor credit was caused by previous loans, chances are that you will sink deeper into debt by taking another loan. Because the loan has a very high interest rate, the chances are you will concentrate on paying the logbook loan while turning away from previous credits. This will push the credit score lower making it more difficult to get a loan from banks in future.

The process of debt collection can be very stressful

If you get a bank loan, there is a room for renegotiating monthly payment in case the amount you committed to is too high. However, logbook loan providers are known to make frequent harassing calls demanding their money, sending agents to your home, and adding new penalties. The debt recollection processes has been associated with stress and reduced productivity.