Granted, the allure for logbook loans has been informed by ease of application, faster approval and the fact that credit checks are not mandatory. In fact, lack of credit checks is the single most attraction to logbook loans. It in essence gives bad credit individuals an opportunity to get access to credit facilities without stressing over the state of their credit score. While this has been a major benefit of logbook loans, this loan product has not been devoid of inherent risks to the borrower.
What is a logbook loan?
Fashioned as a short term loan, a logbook loan is essentially a secured loan where the borrower signs over ownership of their car to the lender in exchange for credit. Unlike a payday loan, the car is security and therefore the lender has a way of recouping their money together with interest by disposing off the car in the event that the borrower is unable to service the loan. This security is perhaps the reason why logbook loan lenders are not keen on performing credit checks or simply don’t care about the results of it thereof.
The catch with logbook loans
If you’ve never taken a logbook loan and contemplating taking out one, you might be wondering that’s the catch with this type of loan. Well, logbook loans work in such a way that you simply sign over your car to the lender in what is known as a bill of sale agreement. The thing is, the bill of sale agreement makes the lender the legal owner of your car and should you be unable to service your loan, the lender has every right to repossess your car.
Who is the legal owner of a car under a logbook loan?
Once you sign over ownership of your car to the lender, the lender becomes the legal owner of the car. In other words, the car does not belong to you for the duration of the loan. The lender simply lends you the car to use it for the duration of the loan. You must surrender the car logbook to the lender who might choose to transfer the car into their own name as they are legally owners of the car. However, it is imperative to note that most lenders resort to this step only after borrowers fail to repay their loans. If you doubt how legally binding this agreement is, just be informed that the logbook loan lender does not need any court order to repossess your car!
Logbook loan risks
By now you should be aware that logbook loans are primarily targeted for individuals with a less than average credit score. In other words, individuals who have difficulty getting a loan from high street banks or simply have a history of arrears are the main customers of logbook loans. While the benefits are immense owing to the fact that these types of loans accord individuals an opportunity to improve their credit rating, the risks are far worse. First and foremost, it is important to note that interest rates for logbook loans are extremely high and this means individuals who go for this type of loan have a high risk of getting into a debt rut.
In fact, the aim of shady logbook loan lenders is to ensure that borrowers are as highly indebted as possible to make them dance to their tunes. With an average APR of somewhere in the region of 400%, a default could see a borrower languishing in debt. As if that is not enough, car repossession is perhaps the most major risk. In fact, some unscrupulous logbook loan lenders are always quick to repossess a car after one or two missed payments. In addition to that, defaults mean that your credit score continues to worsen and this simply means that getting access to credit in the future will be a tall order!
In a nutshell, it is important that you understand all these risks before you make the life changing decision to take out a logbook loan or not.