How Logbook Loans Work
If you’ve decided to use your vehicle as security for your personal loan, it’s important to understand the risks and costs involved. Otherwise, you might end up losing your car with one financial mistake. Before you go ahead and sign the deal, let’s take a closer look at how logbook loans work.
As the name suggests, logbook loans are personal loans that require collateral. In this case, the collateral is your car. You still get to use your car but your lender needs you to hand over your V5 or logbook document along with your MOT certificate, insurance details, proof of identification, proof of billing address and proof of steady income. Your lender will also ask you to co-sign a debt agreement and a bill of sale. The latter document is what enables lenders to repossess and sell your vehicle in case of non-payment.
Since the loan is secured against your collateral, you can borrow a larger sum of money than unsecured loans. In general, logbook loan lenders offer amounts from £500 to £50,000 at repayment terms from 12 months to 36 months. You can use the money any way you want. Lenders do no require you to disclose the reason behind the loan. As long as you meet the requirements, your application is good as approved.
When it comes to cost, the known average representative APR for logbook loans is 400%, which many experts deem as too steep. Lenders justify the high cost with the high risks they are taking to lend borrowers money.
Repayments for logbook loans are done via direct debit deduction. In order to avoid complications, it’s important for borrowers to maintain a sufficient balance on their debit accounts to cover for the monthly repayments. Otherwise, lenders may send out a debt collector to hound you for the payments. If there is still no response after several attempts, this is when lenders use the bill of sale to recover your car to cover for your outstanding balance.