The number of people who default their logbook loans in the UK is very high. This has made stakeholders start contemplating measures such as those introduced to help cap the Payday loans interest. FCA introduced news legislation that prohibits payday lenders from charging more than double the amount a client borrows.

The main question at this point has been why more people are defaulting on their logbook loans? Unlike the conventional loans, logbook loans come with a very high-interest rate that can reach up to 400% APR. The burden becomes too much because borrowers are also servicing other loans and must also meet their monthly expenses. The ultimate impact is defaulting and sinking deeper into debts.

If servicing the logbook loan is becoming difficult, many people fear that the lender will simply recover the car. However, this is not the case. The following are the main reasons why logbook loan lenders prefer to negotiate rather than recovering your car.

Negotiating with the borrower yields more in profit

Though you have defaulted for a few months, the logbook loan dealer sees an opportunity to make more profit. By renegotiating with the borrower, new penalties are imposed on the loan which helps to raise the profit for the lender. If the repayment terms are renegotiated fully, the interest could even go several points higher. Though it is not a situation that lenders want to get into, any opportunity to make an additional profit is never wasted.

Negotiating with the borrower helps to strengthen a brand in the market

Logbook loan companies operate like other business in the UK. To win trust from clients, the lenders want to cultivate a positive image of their brand. One way of achieving this is maintaining some level of flexibility with borrowers.

In many cases, borrowers experience delays in their payments while others can have issues that warrant skipping several repayment schedules. By listening to the client and appreciating the situation, a lender is sure of building a good image and attracting more clients through referrals.

Recovering a car and auctioning it involves working with third parties

Though a client has defaulted several months, the process of recovering the car and auctioning it is lengthy and costly. Besides, it involves a lot of third parties who drive the expenses further up. A recovery company must be contracted to trace and recover the car before the auctioneer takes over. Between recovery and auctioning, additional costs might be incurred in parking and security fees.

Instead of working with all the third parties, negotiating with the borrower will be cheaper and convenient for both parties. The borrower will work on his finances to get the remaining amount cleared while the lender will enjoy the predetermined profits.

There is a likelihood of not recovering the entire borrowed amount

Since the logbook loan borrower is allowed to continue using the car while repaying the loan, the value keeps depreciating. If the car is recovered, there is a likelihood that the price will not cover the entire loan. This will be a huge loss to the lender because the original objective was to make a profit. In some cases, the process can end up being a court battle as the lender tries to recover the remaining amount. This is a very expensive undertaking.

By negotiating with the borrower, it is easy to narrow down to the main problem and solve it. Some lenders are even very committed to helping clients understand their current financial situation and craft good resolutions. Therefore, do not shy away from reaching the lender because the salary has been delayed or you have defaulted for one month. The lender might be seeking for a lasting solution just like you.