Logbook loans an expensive option for car owners
Car owners seeking quick loans are turning to logbook loans when their bad credit limits their options. These products are intended to increase acceptance rates to more borrowers since lenders are protected from default. The car is the lender’s guarantee.
The obvious conclusion is that loan applicants should be able to expect lower interest rates on these products due to the collateral. This would be a false assumption.
Are they similar to personal loans?
Logbook loans are structured similar to personal loan products sold by banks and credit unions. A balance of £300 up to £50,000 is possible, and payments may be spread out over a two to five year period. In this respect they are similar.
Logbook loans have huge costs even though the products carry substantially less risk than their unsecured counterparts. Secured options should carry interest rates similar to unsecured personal loans, but that is not the case.
Even applicants with spotty credit should be able to receive a moderately priced rate when putting their car down as security. Unfortunately, companies that specialise in logbook loans continue to charge excessive rates and fees that dwarf the costs of proper personal loan products. The security fails to bring about a meaningful rate reduction.
More similar to payday loans?
| Logbook Loans | 528.3% |
| Mobile Money | 319.4% |
| Auto Advance | 300.3% |
| Gissaloan | 253.24% |
| Car Cash Point | 230.7% |
| loanmymotor.com | 230.7% |
| EasyLogBookLoans.tv | 190.3% |
| Varooma | 190.3% |
| The Car Loan Centre | 164.61% |
| Gissaloan Gold | 132.26% |
Most of these products carry interest rates that mirror payday loans. Representative APRs range from 100 to 500 per cent.
The costs are absolutely staggering. Yet many debtors turn to this dubious option when faced with a financial emergency. They become desperate and see this as a way to get through the next couple of weeks. Only after this initial period do most customers realise the gravity of their error.
Like payday loans, logbook loans can put drivers in the fast lane on their path to insolvency. There are almost always other products that are better suited to serve a temporary financial crisis.
This rate comparison shows the variance of costs associated with competing products.
Alternatives
One more palatable option is to actually refinance the car to raise additional funds. This works similar to gaining initial financing for a car purchase.
The car is the security for the account. Rates are similar to what a borrower would normally qualify for when they first buy the car.
The big difference is that lenders that offer vehicle refinance have rates that start as low as three and four per cent. Logbook loans are the same type of product, yet these rates begin at well over 100 per cent. The difference is shocking.
Disclosures
One aspect where the products stand apart is the required legal disclosures. Logbook loan advertisements include the warning “If you take out this loan it will be secured on your vehicle via a bill of sale agreement.” While all secured car loans carry this notification within the agreement, the government has mandated that logbook loan solicitors also include this warning in the advertisement.
Consequences of default
The repercussions of defaulting on a logbook loan are severe. Even though the principal balance lent is far less than the value of the vehicle, customers face losing their entire equity in the vehicle if it is repossessed.
The option to repossess the vehicle is carried out by lenders who wish to protect their investment. The only risk is that the car is kept in hiding or that it falls into a state of terrible disrepair and is worth less than the balance owed. Otherwise, there is very little risk to the firm.
A car owner who loses their car to repossession may still petition the firm to regain ownership. However, this generally requires repayment in full of the account balance, which by that time will include repossession fees and other charges that can inflate the balance by a couple thousand pounds.
Recommendations
Anyone considering a logbook loan should first contact a Citizens Advice Bureau or Money Advice Centre for assistance. These services go beyond simple advice.
Often a specialist is aware of better methods for fulfilling urgent money needs than high rate financial products. They can help you decide if this is truly the solution you want or if you prefer another method for meeting your short term money needs.
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