Taking a logbook loan is as simple as proofing a car is yours and source of revenue. In many cases, you can have the cash against the car within hours of application. However, many financial experts have referred to logbook loans as serious landmines that could easily land a borrower into a sea of trouble. Apart from the high APR that could run well over 400%, there are other numerous dangers that a borrower should be cognizant about.

Costs of repaying the loan early

While most lenders point the ease of applying and releasing cash, the target is making clients fail to interrogate the entire agreement. However, you can only fail to check every detail of the agreement at personal peril. One of the hidden costs that they do not want you to see is the penalty for early repayment.

If you have agreed to repay £70 every month but repay £100, a penalty will be levied on the additional £30. If you do not read between the lines and have the clause that limits the repayment only to the agreed amount per month, there is a risk of additional charges running into hundreds of pounds.

Negative impact on your credit score

The fact that logbook loan dealers do not factor your credit score when approving loans is considered good news to applicants. However, if you default on payment, it will impact your credit score negatively. Because they are licensed lenders, they are also allowed to submit financial reports to credit reference agencies that calculate your score. If you had allowed the lender to draw monthly repayment directly from the bank, progressive overdrafts could result to more debts and pull the credit score further down.

Harassment by debt recovery firms

When you lag behind the agreed repayment schedule, many lenders will enlist the services of a debt recovery firm to recover their money. Most of these firms are known to harass clients through multiple phone calls throughout the day and night. Many borrowers find it very hard to cope when abusive calls are made in the middle of the night by borrower demanding money.

If you cannot make the payment as demanded, the borrower will come and tow away the car anytime of the day or night. Many lenders will arrive at your home very early in the morning, come to the workplace, or even intercept tat car on the road. It can be a traumatizing moment to see the only family car getting towed away for auction.

Risk of lawsuits after car repossession

If the lender repossesses the car, the borrower is required to clear the outstanding balance within 14 days. If you cannot make the payment within this timeframe, the car will be sold through auction. However, you yet to get off the hook! Of the car is sold for an amount less than the outstanding balance, you will be sued to repay the repay the remaining amount. This is very dangerous especially at a time when you are already in financial trouble.

How to avoid the hidden dangers

  • Look for a lender with lower interest rates
  • Read through the agreement and insist on removal of harmful clauses
  • Review the lender’s history to pick the one with good repossession practices
  • Only deal with licensed lenders
  • Avoid falling behind payments by drawing a good repayment strategy
  • Seek financial assistance from an expert on how to handle personal finances
  • Do not run away from the lender if there are issues with repayment. Instead, consider negotiating the terms and conditions.
  • Make sure to always stay on top of the logbook repayment schedule and try clearing it faster.