For years, logbook loans have grown in popularity in the UK especially among borrowers with bad credit scores. The loan product is specifically offered for consumers who cannot get a personal loan from major banks. But while popular, the logbook loan product has also been criticized for its high cost and high risk. If you’re planning to apply for this type of financing, you might want to fully understand how the logbook loan works. Here’s a quick guide you might find helpful.
When you are thinking of applying for a logbook loan, the most important requirement you need to meet is you must be a vehicle owner. You can only avail the loan if you’ll use your car as security. The car must be free of any financing to be acceptable. Most lenders accept all types and make of cars provided that it’s less than ten years old.
It doesn’t matter if you have a poor credit score, the loan product will still be available for you. What your chosen lender will need instead is for you to submit to them your V5 document which proves you are the owner of the car together with the cars insurance details as the Ministry of Transport (MOT) certificate. In addition, you’ll be required to sign a debt agreement and a bill of sale document wherein you agree to the terms of vehicle repossession.
Once approved for a logbook loan, you can still use your car but you’re no longer the owner. The lender becomes the temporal owner of your vehicle for the duration of the period your contract is in force until such a time you clear making repayments for your loan.
Vehicle repossession, fortunately, is not the first action lenders carry out in the unlikely event of nonpayment. If you happen to miss several payments, your lender will send out a debt collector to collect the payment. If you can update your payments, you shouldn’t worry about repossession. Conversely, if you are still unable to keep up with the monthly repayments, this is when the lender may enforce repossession. The lender may then opt to sell your vehicle to cover for your loan balance.
Apart from repossession, there’s also the cost to think about. Logbook loans are costly because of the high risks involved. In general, the average APR for this type of financial product is 400%, sometimes higher depending on your lender. But thanks to tighter competition among lenders, the interest rates have gone down over the years. To find the cheapest logbook loan, research is key. You can also use comparison sites such as Money Co UK to compare the best logbook loan deals available in the market.