Most of us come to a point in life where we are facing a financial predicament. Be it a late mortgage payment or stuck paying your car financing loans, financial troubles not matter how big they are always a hassle. The stress keeps pounding when you realize that your bank sends a letter at your doorstep announcing that their credit criteria has further strengthened implying that it would be more hard to obtain a loan.
The fact is that usually banks do not even consider an application with an Equifax score below 961, and even that requires a 10% deposit.
So what can one do in these tough financial times? Lucky for you, the lending industry has now become very diverse thanks to tough competition from online lending websites such as Quiddi compare. This has resulted in a number of different financial products, allowing borrowers to securitize a loan using any asset. Logbook loans are an example of these loans.
What is a Logbook Loan?
Logbook loans are a type of secured lending when the borrower keeps an asset (vehicle, property) as collateral until the time when the loan is repaid. Even though the borrower is allowed to keep the documents of the car with him/herself, he or she can use the vehicle in the meanwhile.
Initially introduced in the UK, the concept of logbook loans now has gained popularity in several other countries. These types of loans are usually regulated by the Amendment Act 1872 and Bill of Sales Act 1878 in England.
The loan involves both parties signing a detailed contract about the terms and conditions. However, many online lenders now accept digital signatures to streamline the process. You may be required to sign some additional documents as well, depending on your region.
For people living in England, Wales and Ireland, the borrower will have to sign a bill of sale which serves as a credit agreement. Lenders would get the bill of sale registered with the high court in order to repossess a vehicle. No such agreement is required in Scotland.
The processing time depends on the vendor but hovers around 4-5 days. However, many lending websites offer premium services that can have a loan ready within a few hours. The charges for these services are generally higher, with surcharges of 3% on average. The loan is provided via mailed cheque or bank transfer.
The payments may be made on a weekly or monthly basis on the discretion of both parties. The loan can range from £2000 all the way up to £40,000, depending on the car’s current value. As a general rule of thumb, the maximum borrowable amount is half the car’s worth.
The repayment schedule is customizable and can be extended up to 1.5 years. You can choose two options; either paying off the principle amount monthly along with the interest on the remaining amount, or pay it off as a whole at the end of the period while paying the per month interest on the principle amount. Early repayment is also a possibility, but the borrower might have to pay a surcharge.
The average APR on these loans is around 400%, which is significantly more as compared to conventional credit terms, which boast a 12% APR on average. We will discuss this in detail in the next section.
The vehicle’s logbook must be registered to the borrower’s name and the collateralized vehicle must be no older than 8 years. You have to provide proof of regular source of income or employment. The vehicle must not have any outstanding debts and the vehicle has to be taxed and insured. However, some lenders may waive off the latter.
Pros and Cons
The greatest advantage of logbook loans is their accessibility. While banks have a stringent lending criteria with a high rejection rate, logbook lenders don’t do a credit score check as long as the vehicle is clear of any debts. They are also convenient due to their fast processing times through online lenders, with borrowers getting the loan amount in a matter of hours.
However, there are certain disadvantages as well. The vehicle may be repossessed if the loan payments aren’t met on time, so borrowers should make sure that they choose a realistic payment plan. In case of the vehicle being sold at a value lower than the loan amount, the borrower would have to cover the remaining amount.
Critics often point out that the APR is very high on these loans. Though that is true, the APR calculation is biased due to the extended loan term on credit card borrowing and shouldn’t be used in conjunction with short term loans. While credit cards are repaid over longer periods, logbook loans are meant to be paid off within a month or two. Because of this and the added risk of no credit checks on the lender’s part, there is less incentive for them to provide a short term loan.
The premium serves as an additional incentive for lenders to provide a risky loan. Lenders must realize that these loans are meant to serve as an emergency bailout and must be treated as such.
Best Place to Get a Logbook Loan
If you’re looking for a logbook loan in the U.K., there are several options. While logbook loans were limited to individual lenders back in the day, today many formal institutions such as banks and credit unions have started providing these types of loans. However, these vendors usually do a credit check to assess the borrower’s default risk. They also take a longer time to process the loan application, negating the entire point of a logbook loan.
Nowadays, online lenders such as Quiddi Compare have become attractive options for borrowers due to their faster processing times, lower credit criteria and competitive rates. Since these websites list individual lenders from all over the country, you are likely to get a lower rate when borrowing online. The other big advantage of these lenders is that they can produce automated debit statements on request, so borrowers can keep track of how much they need to pay back.