In an ideal financial situation, you should have enough emergency funds to cover a range of unexpected expenses. You also have more money to invest in high interest investments such as mutual funds and stocks. You’re free of debt and you’re basically basking in the wonder of financial freedom. Unfortunately, reality is rarely close to what’s ideal. For most people, debt is a perpetual problem. A large majority of consumers also don’t have enough savings stashed away for emergencies. If you have bad credit under your belt then you have an even bigger problem when an unexpected expense hits you right in the face.
This is where financial options such as logbook loans may save the day. When you have bad credit and you’ve been refused a personal loan elsewhere but you own a vehicle, you are eligible for a logbook loan. But should you take it?
There’s really no definite correct answer to the question. While most financial advisers will tell you to avoid the loan altogether, there are immediate situations when a logbook loan does come handy. Rather than reject the financial product as an option, you can reserve it as a last resort after you’ve exhausted cheaper alternatives.
If you think that taking a logbook loan is suitable for your situation, the next step is to understand how the product works. Below is a quick guide to logbook loans:
What is a logbook loan?
Logbook loans are secured personal loans that require collateral, in this case your vehicle, to get approved for. Since there’s security involved, lenders are not as strict as banks. Even with bad credit history under your belt, you are still welcome to avail the loan provided that you are of legal age, a UK resident and a vehicle owner. The vehicle must be free of any financing and should be less than ten years in age to be accepted.
How much can you borrow?
With logbook loans, the amount of money you can borrow is more flexible thanks to the require collateral. In general, you can borrow anywhere from £500 to £50,000. Most lenders will also let you borrow up to 70% of your car’s official trade value.
How long do repayment terms last?
As for repayment terms, you can repay the loan in 12 to 36 months. You can choose to set up repayment in weekly or monthly installments depending on which is more comfortable for your situation.
What is the interest rate?
The interest rate varies from deal to deal but typically, the representative APR for logbook loans is somewhere at 400%. The steep cost is one of the reasons why experts advise consumers to stay away from the product.
Fortunately, with stiff competition is the need for lenders to lower their interest rate as a way to lure customers. If you take your time to browse through online and compare deals, you’ll likely find a simple and affordable logbook loan deal that’s not only tailored for your needs but also for your budget.
What are the risks?
Other than the steep interests, another important factor to consider when looking into logbook loans are the risks of repossession. Because the loan is secured against your vehicle, you may lose your car in the event that you are unable to repay the loan. If you do decide to go through with the logbook loan application, make sure that are fully committed to repay the loan until the end of term. Otherwise, you may end up with a worse credit score and without a car.