The Lowdown on Logbook Loans | 101 Financial Lessons

There are many different ways of getting a loan, from credit cards, to secured homeowner loans, and in recent years, logbook loans have become more popular. These can be used for consolidation purposes and you can click here for further details. Many people are unsure how they work however, and there have been many suggestions that they are not at all good value. It?s important to understand how they work.

Process

Simply put, a logbook loan is one which is secured against your car. The company you go to will value the vehicle, and then decide how much they are willing to lend you, and then give you a monthly interest charge. If you default on a payment, you run the risk of your car being repossessed. The finance is HPI registered, and the company will take your V5 logbook for the duration of the loan.

Risks

Many people take out the loan assuming that they will easily be able to pay back either the monthly payments or the sum at the end of the agreed period. The problem is that you never know when something might happen that prevents you from being able to pay the money. You could easily end up losing your car very quickly if you aren?t careful. This is especially risky, as lenders often use the very lowest possible market value for your car, and will only lend around half of this amount.

Costs

The charges themselves are often very high. Most logbook loans are taken out for up to three months, and interest charges can often be around ten per cent of the loan value each month. This doesn?t sound like a huge amount at first, but for a ?2000 loan this would cost ?600 over a three month loan. The APR isn?t always obvious either, which means it?s very difficult to work out how much the loan costs compared to other sources of finance.

In conclusion, it?s very rarely the case that securing a loan against your car is a good idea. It can represent poor value for money in terms of the amount you could potentially borrow, and the interest and administration fees charged.

Source: http://101financiallessons.com/the-lowdown-on-logbook-loans

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