How Logbook Loans Work


Logbook loans are very popular in the UK today and for good reasons. It's not only readily available online but it's also suitable for people with bad credit. This makes the financial product a favorable option for people who have ever been refused a personal loan elsewhere due to their history of ccjs, default and bankruptcy. But how exactly do logbook loans work?

If you're thinking of taking out a logbook loan, here is your quick guide to understanding the risks and costs associated with the financial product.

What is a logbook loan?

A logbook loan is a type of secured personal loan designed especially for people with bad credit. If you're a car owner and you need cash quick, getting a logbook loan is a viable option. You can borrow anywhere from £500 to £50,000 at repayment terms from 12 months to 36 months.

With a logbook loan, you use your car as security eliminating the need for a credit check. This means faster processing time and fewer worries about your bad credit history getting in the way of your loan approval.

How much is the interest rate?

While easy to avail, there's a flip side to logbook loans you need to carefully consider and understand. One of which is the high interest rate.

Logbook loans, in general, come with a hefty interest to compensate for the high risks lenders are taking on their borrowers. The known average representative APR, for instance, is at 400%. Some lenders may offer less but the cost, in any case, is still pretty steep. To illustrate, let's say you want to borrow £1,000 over a 12-month repayment term. If the representative APR is set at 300.3% and the flat rate interest p.a. is fixed at 96%, you will end up paying a total of £1,960.08 or £163.34 per month.

As you can see, the interest you will pay for a £1,000 loan at given interest rates is close to the amount you borrowed by end of term. It can still go up or down considering that the APR is only the representative and not the actual rate. For a more in depth discussion of APR, go to http://www.moneysavingexpert.com/loans/personal-loans-apr-examples.

What are the risks?

Other than the high interest rate, there's also the risk of repossession. When you apply for a logbook loan, your lender will require you to hand over your car's V5 or logbook documents together with your MOT certificate, insurance details and other needed documents. In essence, it's like handing over temporary ownership of your vehicle to your lender.

In the event that you are unable to keep up with your monthly repayments, your lender can use the "bill of sale" agreement to repossess your car and eventually sell it to cover for your loan's outstanding balance. If the car's resale cannot over said balance, you will still be required to repay the balance in the end.