When you need quick cash but you have bad credit, your options for short term financing are often limited. In fact, most providers are likely to refuse your application because of your history of delayed payments, non-payments, CCJs or defaults. To bridge this gap in the lending industry, logbook loan lenders exist to offer borrowers an alternative.
As long as you have a car and meet the basic requirements, chances are high that you can get approved for a logbook loan in 24 hours or less. If it's your first time taking out a logbook loan, here is your quick guide about the financial product:
A logbook loan is a type of personal loan that is secured against an asset. In this case, the asset is your car. To be eligible for a logbook loan therefore, you need to meet the basic requirements and you need to own a car that will serve as collateral.
In general, acceptable vehicles must be less than ten years of age and it should be free of any financing. You'll be required to hand over your V5 or logbook document in addition to other necessary documents to your lender. You are essentially handing over temporary ownership of your vehicle to your lender until you can repay the loan.
Since there is collateral involved, logbook loan lenders offer high loan amounts compared to unsecured personal loan options. Depending on your car's official trade value, you can borrow anywhere from £500 to £50,000 which you can use for personal expenses such as to pay for overdue bills, car repair, vacation, school tuition, home renovation or to use for an investment.
Repayment terms for logbook loans vary from lender to lender but in general, you are expected to repay your loan within 12 to 36 months. The term often depends on the amount owed and the borrower's financial capability. Most lenders usually offer borrowers more freedom to tailor the loan terms in accordance to the loan amount to make it more comfortable for you to repay your loan on a monthly basis.
Just like the loan terms, interest rates vary from lender to lender. On average, the advertised Representative APR (annual percentage rate) falls between 300 and 400%. With competition getting stiffer and tougher among lenders, however, some are now offering logbook loan deals at APR below 300%. Head over to Money Facts for more info on APR.
One of the top logbook loan lenders in the UK, for instance, is offering loan amounts from £500 to £25,000 at Representative APR of 99.7%. Let's say you plan to borrow £1,000 at repayment terms of 12 months. Considering the aforementioned Representative APR at flat rate of 42.6% p.a. (fixed), your required monthly payment will be £118.8 or £1,425 in 12 months.
As opposed to unsecured personal loans, secured loan options such as logbook loans come with greater risks. At the top of the list is repossession. Because your car is used as collateral, your lender can repossess your car in the event that you failed to keep up with your monthly liabilities. They can eventually sell the car to cover for your outstanding balance in cases you still fail to settle your accounts after legal reprimands.
With logbook loans, you also have to face the risks of higher interest rates. Compared to traditional loans, logbook loans and similar financial products charge higher interest rates because of the high risks involved. Since you have bad credit in the first place, one of the ways lenders lower the risks on their end is to bump up the interest rates.
Because of the high risks involved, logbook loans are not often the recommended financial product for borrowers. If you have bad credit and your options are limited, however, logbook loans come off as one of the best options for quick cash. In any case, borrowing money is a liability which is why it's imperative to always know what you're getting into before signing any dotted line.