Every time conventional banks deny people loans, the first reaction is looking for alternatives. A Logbook loan is one of these options preferred by many because it is easy to apply and cash can be in the account within 24 hours. Despite the fact that logbook loans have very high-interest rates at times reaching 400% APR.

In her article on “This is The Money”, Ruth Sunderland carefully captures the problem of debt in the UK and why people need to rethink about the root causes. Ruth Focuses on one man, FCA’S Chairman, Mr Baily, who is an inspiration. In this post, we agree with Ruth and Bailey’s argument that the problem if the high debt cannot be simply tackled by banning logbook loans and other high-interest loans. Rather, the focus should be empowering the citizens.

A shift from low interest to high-interest credit has caught people unaware

For years, many Britons were used to low-interest loans from financial institutions. They could walk into a bank and access loans at interest rates as low as 5%. Now that banks are more stringent to keep the associated risk low, many people are locked out because of low credit score.

As people take alternatives such as logbook loans that have very high-interest rates, repayment becomes overwhelming, and the debt starts to balloon before getting out of control. This is the reason that most Britons are on debt management plans.

For many people, the decision to go for logbook loans is not informed by reason, but a rush to pick what is available. In fact, most of the issues associated with logbook loans can be addressed by carefully selecting the right borrower and negotiating the interest rates.

Rates Cap legislation worked with Payday loans: Will it work for logbook loans?

Recently, FCA introduced caps for pay-day loans that prohibits lenders from charging more than double the amount borrowed. This approach has worked to calm down and prevent the ballooning debt among households. While many stakeholders have recommended the same approach for Logbook Loans, FCA points that more need to be done.

  • Cutting people from accessing credit is not one of the options: In a world where the level of employment is significant, accessing credit from conventional institutions can be difficult. Therefore, FCA appreciates that people need to have all the options on their table.
  • Need for a proper dispute resolution system for small lenders: In many cases, borrowers who feel aggrieved or rights violated have nowhere to turn to. They ultimately suffer in silence as they sink deep into debts. By establishing a proper dispute resolution system, logbook loan borrowers can be sure of getting protection from unfair practices.
  • Focusing more on consumer advice: Many Britons sink into debts because they rarely understand the problem related to logbook loans. By providing financial advise the borrower will be able to carry due diligence and only borrow what he/she can afford to repay.

Consumer advise should be implemented at two levels; One, all logbook loan dealers should be required to advise their clients on various concepts of the loan. At the moment, they hurriedly ask the borrower to sign the agreement and rarely intervene when they fall into debt. Two, FCA and other financial institutions should take the role of advising Britons on financial management especially when it comes to seeking credit.

While logbook loans are no doubt very expensive, they form one of the unconventional lending options that FCA is not willing to scrap from the market. As a borrower, you must be extra careful with who you are borrowing from and the interest rates.