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Do you need quick cash but has bad credit to worry about?

How Logbook Loans Work

Whether you’re taking out a logbook loan for an overdue bill or a medical emergency, it’s important to understand how logbook loans work before signing any deal. Here’s a quick guide to better understand the financial product:

What is a logbook loan?

Logbook loans are secured loans offered for people with bad credit and can’t otherwise avail a traditional loan elsewhere. As long as you’re a vehicle owner and you meet the basic requirements, you can take out a loan from £500 to £50,000. Repayment terms start from 12 months to 36 months. You can pay the loan weekly or monthly depending on which set-up is more comfortable for you financially.

How it works?

With a logbook loan, you will need a vehicle as collateral. This means you’ll be borrowing against the value of your car. Your lender will require you to provide your vehicle’s logbook document along with other documents. You get to keep your car and still use it like usual but temporary ownership has been handed over to your lender. You can get your logbook document back once the loan is fully paid off.

Because there’s security involved, lenders are able to approve applicants with bad credit. There’s no need to run credit checks anymore hence approval is not only easier but also faster. There’s just one disadvantage. Prior to approval, you’ll be asked to sign a “bill of sale” agreement. This means that the lender has the legal right to repossess your vehicle in the event of nonpayment.

Is it for you?

Other than repossession, you’ll also have to consider the cost of the loan. To balance out the high risks lenders are taking, they offer logbook loans at steep interest rates. The average Representative APR for the product is 400%, which when compared to traditional loans for people with good credit is multiple times more expensive.

While easy to get approved for, it is important to consider both the pros and cons of this financial move. Logbook loans offer an easy way out for a wide range of financial emergencies. In exchange, you’ll be putting your car at risk to repossession and paying a hefty price in interest. If you do proceed with the loan, remember to follow the simple rule of borrowing only what you need and what you can afford. Doing so will ensure you’ll always be able to handle the monthly repayments thereby avoiding vehicle repossession.

For more info on how logbook loans work, Money Advice Service has a comprehensive guide you can check out.