Understanding Logbook Loan Risks

When you have bad credit under your belt and you want to apply for a personal loan, expect to get rejections more times than usual. This is where logbook loans make it easier for borrowers. With logbook loans, you just need to meet the basic requirements to be able to avail quick cash, which you can use for a variety of financial emergencies.

But just because logbook loans offer a quick way out of your financial problems doesn’t mean you shouldn’t be extra careful when applying for this loan. Before you finalize your decision, understanding the costs and risks associated with this financial product is key to managing your loan effectively.

Here are two questions to help you better understand how logbook loans work:

How much does a logbook loan cost?

If you ask financial experts, they’d tell you to stay away from logbook loans because of the high cost. Because a logbook loan is a bad credit loan, it follows that it comes with high interest rates. The financial product, in general, is advertised with 400% representative APR on average.

To better understand what representative APR means to your loan’s cost, let’s say you wish to borrow £850 over an 18-month repayment period. If the advertised representative APR is 450%, for example, and your loan is at a flat rate of 132 p.a., you will end up paying a total of £2,533 inclusive of interest, admin fees and other related fees. On a monthly basis, you will be responsible for paying £140.70 for the next 18 months. Click here if you need additional info on representative APR.

How risky is a logbook loan?

Other than its high cost, logbook loans get more flak from financial experts for the risk of vehicle repossession. Just like when you apply for a mortgage loan and you risk your home, you risk losing your vehicle when you get approved for a logbook loan. As dictated by the loan terms, which you also agreed with, your lender has the right to recover your vehicle then resell it if necessary in the event that you can no long make your repayments.

With your vehicle as collateral, logbook loans are risk loans to resort to when you’re in a financial bind. But at the same time, the risks are generally manageable provided that you, as the borrower, did your homework. If you borrow only what you can afford, there’s no risks to worry about.