Logbook loans are a type of short term loans that are secured against your car. Literally speaking, your lender takes your vehicle’s logbook in possession while the loan is still in place. While you can continue driving your own vehicle, you cannot get the logbook back until the loan is paid back in full.
Logbook loans are becoming one of the easiest lending solutions nowadays. With the growing number of people with bad credit, it’s harder than ever to qualify for personal loans from banks and other lending institutions. Thankfully, logbook loan lenders specifically cater to the needs of borrowers with bad credit, particularly those with arrears, IVA’s, and those who have filed bankruptcy, whose applications for normal loans will be downright rejected.
Now let’s take a closer look at what these loans are all about, and the advantages and disadvantages of getting one yourself.
Larger Borrowing Limit
Because of the attached security on the loan, lenders are more willing to lend out a larger amount of money that is equal to about 50% to 70% of your vehicle’s current market value. This is very useful in situations where a large amount of money is needed.
No Credit Check
Logbook loans are specifically designed for borrowers with credit problems and couldn’t avail a cash loan from traditional sources such as banks or building societies. You will only be judged based on your capacity to pay and not on your credit rating.
Unlike other loans with a fixed repayment period, with logbook loans, you decide how often and how much to pay. This gives you the flexibility to choose your own payment terms and manage your finances with ease.
Same Day Approval
Because logbook loans have no credit and other stringent checks involved, your money is usually released within the same day of application. If you need the money for emergencies, a logbook loan can give you a temporary cash flow fix.
While we have summed up the advantages of logbook loans above, we have listed down the cons of logbook loans below.
There’s no denying that logbook loans have outrageously high interests, and are not for those who constantly find themselves in debt. It’s good to know however, that logbook loans are still cheaper than payday loans, and are much easier to repay.
Vehicle Becomes the Collateral
The biggest drawback of a logbook loan is that you’re basically putting your vehicle at risk. If you fail to pay the loan back, the lender can take your vehicle and sell it to cover your unpaid balance.
Can Affect Your Credit Rating
If you’re looking into a logbook loan, chances are you’ve had troubles with your repayments in the past and your credit rating tells all about it. Missing your logbook loan repayments can further put your credit score in danger, thus limiting your borrowing options in the future.
If you’re in a situation where money is always tight and the need for borrowing arises from time to time, perhaps it’s time to evaluate where you are financially. There’s nothing wrong with seeking advice from professionals. Non-profit sites like StepChange can help you fight this never-ending cycle of debt without charging you an arm and a leg.
If you’re struggling to manage your bills month after month, there are two types of programs that you can use – debt settlement and debt consolidation. The advantages and disadvantages between the two differ, but both aim to make your debt more manageable and help you get out of it sooner. Here, we’ll discuss what each one is all about to help you decide which program better suits your needs.
Debt settlement is where you or your representative negotiates with your creditors to “settle” the debt for less than what you originally owed them. For example, if you owed £10,000, you could offer to pay £5,000 instead. If the creditor agrees, your debt is considered paid.
Paying for less than what you really owe may seem like the more attractive choice for many people. But if you owe more than one lender, you’ll need to go through the process with each one of them, during which time you could be charged more in late fees and other charges. Additionally, if you hired a debt settlement company to do this for you, here are some other things to consider:
Company fees – debt settlement companies will charge you a fee to negotiate on your behalf based on how much you owe. So for example, if the charge is 20% to 25% of the final settlement amount, you would owe them another £1,000 to £1,250 in professional fees.
Impact on your credit score – while it may seem that the debt is settled, the fact that you didn’t pay your debt in full will appear on your credit score and could last up to 7 years, making it more difficult for you to get credit in the future.
Time frame – normally, debt settlement cases last for 2 to 3 years, during which time more late fees and penalties are added to the amount you owe.
Tax consequences – the amount of debt that is forgiven may be considered as your income and you might be obliged to pay taxes on them.
With the number of disadvantages attached to debt settlement, this often should be considered only as a last resort and only if you need to avoid bankruptcy.
On the other hand, debt consolidation is another debt management program that could help you if you are overwhelmed with the never-ending bills coming through each month. With debt consolidation, you are basically combining all of your debts into one single loan that entails new rates and repayment terms. However, it should be noted that this option is only for those who are willing to make sacrifices and limit their spending to a minimum.
If it comes to a point that you’re paying only the minimum amount to each creditor you owe, debt consolidation could help you catch up. It simplifies the process of paying your bills, because you’ll be making only one payment at a fixed date per month instead of paying various amounts to multiple creditors with multiple due dates.
Unlike debt settlement, your debt is not forgiven in debt consolidation. You still owe the same amount of money, but the new consolidated loan will have lower interest rates and lower monthly payments. However, it also means that you should be prepared to monitor your spending for about 2 to 5 years because debt consolidation could take that much time before your debt is cleared. You could consolidate your debts through personal loans, balance transfer on credit cards, and home equity loans. Be wary though, that while the last option may be the cheapest of all, this will put your home as collateral and should not be taken lightly. Your property could be at risk for foreclosure if you fail to make payments.
It’s hard to tell which is the better option between the two, because each person has his own unique circumstances. However, one thing is for certain – either of the two programs can be very helpful in managing your debt, provided that you are willing to make a conscious effort to decrease your spending.
Getting a cash loan is almost always a sure thing. Sooner or later, you’ll find that you’ll need financial assistance in purchasing goods, assets, and other things that haven’t crossed your mind as of the moment. Before you do so, however, it’s important to know where you stand and how much this loan will cost you by reading this guide.
The Interest Rate
The interest rate is one of the biggest factors that dictate the overall cost of your loan. While it’s important to grab the cheapest possible rate, it’s also important to check how these rates apply and how they can affect the total cost of your loan. Additionally, it’s worth noting that the representative rates offered on lenders’ websites don’t necessarily become the interest rate that will be offered to you.
The Amount You Intend to Borrow
In essence, a larger interest rate is applied to a larger amount of money. This is why it is important to borrow only the amount that you really need.
The Length of Time You Want the Loan for
Basically, the longer you hold on to the loan, the higher interest you’ll be paying for it in the long run. Even a very small loan that is stretched in a long repayment period can be very expensive in the end.
Think about charging a measly £25 on your credit card. If you pay only the minimum amount and hold on to this balance for long, you might end up paying £50 or more in interest only.
The Timeliness of Your Payments
Each lender has its own policy regarding missed payments, but generally, you’ll always be charged whenever you miss your due dates. If you’re the type of person who tends to be always late on your payments, or are quite unsure of where your finances will be standing in the near future, it’s best to pick the lender with the lowest penalty for late payments.
It’s also important to check with the lender regarding their policy for early repayment. It’s always a good thing to clear off your debt as soon as you can afford it, but make sure that it won’t cost you a lot to do so.
Your Credit Score
Lastly, your credit score is the key to availing the loans with the most competitive rates and terms. People with good credit rating are naturally rewarded with the cheapest loans, because lenders are taking less risk in lending money to them. This is why it is important to keep your credit score healthy, because you’ll never know when you might need to borrow money next.
In some cases, obtaining a secured loan might be the only option left. If this is the case for you, follow these steps to find the best loan for your needs.
Talk to Your Existing Mortgage Lender
If you have a good record with your existing lender, chances are they may be happy to offer you special terms. While it may not always be the cheapest option, it’s a good starting point for comparison.
In the UK, there are a number of trusted websites that offer free secured loan price comparisons, such as Money Supermarket. You simply have to enter the amount you want to borrow, your contact info and your home details, and they’ll show you which the cheapest lenders are. Keep in mind though that the quote doesn’t include PPI.
Check Before Repaying Early
Secured loans are generally not as flexible as unsecured loans, and it can be very costly to overpay and clear off your debt early. Because it often isn’t allowed, it’s important to work out an affordable payment scheme. If you happen to get some cash and suddenly can afford to pay off the loan in full, you should only pay interest up to that date. However, you need to examine the following penalties.
Redemption penalties are charged if you pay off the loan early and used to be a major problem for those with existing secured loans. However, for new loans amount to less than £25,000, these penalties are legally limited to only two months worth of interest. There are no maximum limits for larger amounts and the penalties can be more expensive.
Rule of 78
A potential hidden penalty used to come for loans of under £25,000 from ‘rule of 78’. This is a formula which allocates repayments towards interest rather than capital. If you pay right after you borrowed, it could mean paying back more than the loan itself.
Getting a secured loan need not always be expensive. Here are some tips to apply when getting a secured loan.
Assess How Much to Borrow
Before you get started, you must list down all your existing debts first. Draw a line where the secured loan rate fits in, and then only consider the loan to pay off those expensive debts above the line.
Do not borrow more than what you need. Never take advantage of the extra amount you’re allowed to borrow for some personal gratification.
Do not feel pressured to consolidate all your debts into one loan, because you’ll tend to repay a higher interest rate for a much longer time for all of them.
Convert Your Debts from Fixed Rate into Variable Rate
Unlike most unsecured loans, secured loans interest rates usually vary in accordance with UK’s base rates and the lender’s own terms. However, if you’re thinking about converting your fixed rate debt into a variable one, always ask yourself if you can afford the repayments if the interest rate suddenly goes up. Also, be sure to check if there’s a penalty for paying off the loan early.
Decide How Long to Borrow for
Be sure to work out a budget and come up with a realistic amount that you can stick to in the long run. Underestimating can take you longer to repay which could cost more in interest, and overestimating might put your property in danger.
When shopping around, it’s important to make sure that the lender shoulders all the costs and should already be included in the loan APR, except for the Payment Protection Insurance. PPI serves to cover the repayments for a limited time in the event of sickness, accident, or unemployment. If you want a PPI for your deal, be sure to compare prices based on the total cost and not the APR.