Important considerations about logbook loans
No doubt about it, if you own a vehicle, have a bad credit rating and need cash in a hurry, a logbook loan is simply one of the best loan options available to you in the United Kingdom.
In fact, with over 95% of people applying for these loans actually getting approval, there certainly is not another loan product that allows you to lend the amounts that a logbook loan would. That said there are some important considerations that you must factor in when taking out a logbook loan, especially to help you find an ethical loan provider amongst the multitude of loan sharks that have set up shop in the United Kingdom.
These considerations can go a long way to helping you determine if a logbook loan lender is for you or not and can certainly help you find the honest ones from the ones trying to make a quick buck. Let’s take a closer look.
How much are they willing to lend you?
One of the first factors to consider is how much a logbook loan lender will give you for your vehicle. Most ethical lenders will only give you around 50% of what your vehicle is actually valued at. They will also take other important factors into account – things such as your monthly income as well as your expenses will go a long way to determining how much you can successfully repay each month without putting you under even more financial strain.
On the other side of the scale, unscrupulous lenders will try to lock you into their logbook loan contract by offering large loan amounts for your vehicle, sometimes well over the 50% threshold. They do not care about monthly expenses and income either and because people are in a dire situation and needing the cash, they sign these loans, locking themselves into terrible contracts that realistically, they really have no hope in paying. Often, this leads to them having their vehicle repossessed to pay off the loan, as they just cannot keep up with the instalments.
What is the interest rate attached to the loan?
The next important consideration is to take a very close look at the interest rate offered. Obviously, the first thing to notice is the actual rate. Logbook loans are a higher interest rate product, usually at around the level of 100 to 400% annual percentage rate (APR). Of course, you want to aim for the lowest APR you can find. Bear in mind, at Shellfish Loans, we let you know the APR for your loan as soon as we have calculated it based on a myriad of factors but including your vehicles value and your income. Other unscrupulous lenders will often try to slip in the highest APR they can. This is hidden away in the fine print of the contract, something people do not really read. Once you have signed, you are locked into that APR and there is nothing you can do about it.
Another factor to consider is whether the interest rate is fixed or not. If it is not, your monthly payments may go up or down depending on how the overall interest rate that banks lend money at changes from quarter to quarter.
Repossession – how quickly will it happen?
Now this is perhaps one of the most important things that you need to establish before you sign on the bottom line and confirm that you have indeed entered into a contract for a logbook loan. Let’s just say this first and foremost. Your vehicle acts as security for the loan company when they give you a logbook loan. Effectively, they own it for the duration of the loan itself. This means that if you default, they have every right to come and take the vehicle from you and sell it to recoup their costs. You have no legal recourse against this as it would have been stipulated in the loan contract that you would have signed.
It is important for anyone wanting to take a logbook loan to understand this. Many people just want the money paid into their accounts but do not worry about the consequences once they default on monthly instalments.
That said, at Shellfish Loans, we will never look to take your vehicle and repossess it should you miss only one instalment. Our policy is to negotiate with our clients should they begin to miss instalments, explaining to them the gravity of the situation. We will also go out of our way to try and help you come to another amicable agreement to allow you to pay the instalments you have missed in one lump sum for example.
Unfortunately, not all lenders are like us. Miss one instalment and they will come for your car to sell it and get their money back. In fact, you may actually still owe them a portion of money because the proceeds from your car sale might not cover the full cost of the loan.
So be very careful and always ask what the policy is on repossession before you sign for a logbook loan with any company.