For people with dire need of urgent cash and bad credit, alternative lending options like logbook loans can seem like something of a blessing at first glance. It’s a quick and easy way to borrow money. All you have to is use your car as collateral to take out the loan. You don’t even have to hand over the keys. You can still drive the car while taking care of your financial obligations.
But wait. Doesn’t this all seem too good to be true? Logbook loans may seem like a safe lending option but they are full of hidden risks that you may be susceptible to if you decide to borrow. Before you decide to take on the loan, keep in mind the following.
High interest rates
One of the common themes with many of the alternative lending options is that the interest rates can be incredibly high. Think about it. Why else would a lender agree to let someone with poor credit borrow from them? The prospect of profit through interest is great for logbook lenders.
However, just to provide you with some context, the annual percentage rate (APR) on a logbook loan is usually around a whopping 400 percent. This means that if you originally borrow a thousand pounds, you may end up paying even more than two thousand pounds worth of interest alone in addition to the original amount that you borrowed.
And if you already have bad credit, chances are that you might not be able to pay such huge amounts of interest in the first place. So you need to be careful.
Failure to repay
When it comes to logbook loans, one question is even more crucial than calculating the interest rate. What happens if you fail to repay the loan?
When you take out a logbook loan, you implicitly agree that, in case of failure to repay the loan, the lender would have the right to take away the vehicle. And you need to bear in mind that this is the lender’s legal right. This is particularly true for places like England and Wales, where logbook lending is regulated by the Bills of Sale Act 1878 and Bills of Sale Act (1878) Amendment Act 1882.
This means that you won’t be able to legally challenge the lender’s decision to take away your car, in court. Whatever you may do, if you are unable to pay back the loan, your vehicle may end up being sold to recover the lost sum. What’s even worse is that many logbook lenders don’t resort to selling the vehicle unless you’ve missed several payments. This means that not only do you lose the vehicle, but you also risk losing a lot of money.
So what are the alternatives?
If you want to protect yourself from some of the dangers of logbook lending, you need to look over towards some of the safer options of borrowing.
The safest alternative to any kind of unsecured loan is to contact some of your friends and family who know and trust you and are willing to lend money to you. Another option is to contact a credit union for safer lending options.