Logbook loans appeal to many borrowers for their ease of access and the freedom to expend the funds as desired. Armed with your motor vehicle, you can obtain logbook financing in as little as 24 hours.
However, merely possessing a car doesn’t qualify you for a logbook loan. There are other critical factors to consider before staking your automobile for logbook financing.
Here’s what you need to know before borrowing against your vehicle.
1. It’s A Secured Loan
Loans fall into two different categories, depending on the requirement for collateral. They include secured and unsecured loans.
Secured loans involve staking an asset as collateral, which a lender repossesses in the unfortunate event of default. On the other hand, unsecured loans may be accessible without collateralizing your valuable possessions.
Logbook loans are a type of secured loan in which your vehicle serves as collateral. While that may sound like a drawback, it’s actually one of the factors that make log book loans more accessible than other loan types.
Another noteworthy distinction between logbook financing and other secured loans is the freedom to retain ownership of your car as you service the loan. The lender will only repossess the vehicle if you default.
2. Not Every Lender Is Credible
When you run a quick online search for the phrase “logbook lenders near me,” your search engine will pull up dozens of supposed lending firms in your location. Some lenders offer their services strictly online, whereas others maintain physical offices in addition to their online loan application portals.
Either way, in-depth research is critical when scouting for reputable logbook lenders. Sample online reviews to understand user feedback before choosing the company.
Besides, compare multiple lenders and pick one that caters to your unique needs. Key focus areas here include the lending amount, interest rates, loan processing time, any hidden fees, and the repayment period.
3. Vehicle Must Be Legally Yours and Roadworthy
To obtain a logbook loan, you must prove legal ownership of the vehicle that you intend to collateralize.
The surest way to prove ownership is by availing an original copy of the car’s logbook, or the V5. Some lenders may advance logbook loans against a jointly-owned car if the other owners are willing to act as cosigners.
Besides, your vehicle must be roadworthy to qualify for a logbook loan. Ensure the car is current on MOT tests, insurance coverage, and taxation (where applicable).
4. Other Eligibility Criteria Apply
In addition to proving ownership of a roadworthy vehicle, you must provide government-issued identification documents to qualify for a logbook loan. An ID card or passport serves as reliable proof of identity.
Your lender may also require recent bank statements and pay slips as evidence of income. If you’re self-employed, your business cash flow records would suffice.
Other documentation includes utility bills as proof of address.
Depending on the lender, you may also undergo some credit checks before getting approved for a logbook loan.
5. Lending Amounts Vary
According to the Financial Conduct Authority (FCA), one of a logbook loan’s defining features is its varied lending amounts.
Loans can range from £500 to £50,000, with £1,000 widely considered the average. The total amount you can borrow largely depends on your vehicle’s worth.
Therefore, it’s prudent to get your car independently valued before applying for a logbook loan. If you can’t find a third-party valuer, you may rely on the online resources on your lender’s website.
Ultimately, your vehicle’s make, model, mileage, and overall condition will determine its current worth.
6. Interest Rates Can Be Astronomical
The FCA estimates the annual percentage rate (APR) of logbook loans in the UK to be 400%. That’s quite inhibitive, considering that most secured loans have an APR between 10% and 15%.
As a trade-off, logbook loans are exceptionally accessible. Rejection rates are quite low, provided you legally own a roadworthy car and meet the other minimum eligibility criteria.
Moreover, you can find lenders that offer incredibly low interest rates.
All you need to do is research widely and negotiate lending terms carefully. Besides, read the fine print keenly to rule out any hidden fees.
7. Repayment Plans Aren’t Cast In Stone
Repaying your logbook loan on time can help build your credit score, qualifying you for other loan types that traditionally require extra incentives. Similarly, defaulting on the loan can have far-reaching implications, including hurting your credit score and losing ownership of the collateralized car.
One effective loan repayment strategy is to set up a standing order with your bank. This ensures a portion of your income is automatically deducted and remitted to your logbook lender.
You can prioritize earlier repayments, too. While logbook loans have an average repayment period of 12 – 36 years, some lenders let you repay early with no redemption penalties.
If the repayment deadline is fast approaching and you fear you might default, you could consider taking out another loan to offset the current one.
Leveraging Expert Information in Procuring Logbook Loans
The decision to obtain logbook financing should never be made on a whim.
Start by determining whether you genuinely require a logbook loan. Then, scout around for credible lenders by leveraging online reviews.
Remember to also utilize a logbook loan for the intended purpose. While your lender won’t try to micromanage how you spend the advanced funds, mismanaging a logbook loan can worsen your cash flow woes and even plunge you deeper into debt.