A peek at Logbook loan basics
No doubt, the introduction of logbook loans in the UK market was a game changer, a new dawn so to speak. It brought an end to a cycle of rejections that most UK citizens with poor credit had become accustomed to. It heralded a new dawn for scores of individuals who had for many years been stuck in bad credit but who now could take the necessary steps to improve their credit score thanks to logbook loans. In other words, logbook loans were a necessary evil irrespective of how expensive they were deemed to be.
What is a logbook loan?
Also known as a V5 loan, a logbook loan refers to a loan instrument that is secured using a vehicle. In essence, you sign over your car to the lender in exchange for the money you need. Your car therefore, becomes the property of the lender for the duration of the loan. What you physically hand over to the lender is the car logbook document but you continue to utilise the car for the duration of the loan.
While we like to advance the idea that anybody can apply for a logbook loan, the truth of the matter is that the term “anybody” borders on the aspect of credit scores. In this regard, anybody (irrespective of their credit score status) can apply for a logbook loan. However, to be eligible for this kind of loan, you need to be a full-fledged citizen of the United Kingdom, a person of sound mind, 18 years or older and ultimately be in some form of employment. In other words, you need to be regularly receiving some form of income monthly. This shows proof that you will be able to service your loan without any difficulties. Additional documents you need to furnish your lender with are:
- A Ministry of Transport (MOT) certificate – this shows proof that the car you are about to set up as security is roadworthy and in good condition.
- Copy of a utility bill (shows proof of address)
- Copy of bank statements/payslips (shows proof that you receive income on a regular basis
- Tax and car insurance details
- Identification card (shows proof that you are indeed a citizen of the UK)
Are logbook loan applications guaranteed?
To a large extent, we can say that logbook loans are guaranteed. However, this is mainly dependent on whether you meet the eligibility requirements or whether your car qualifies as collateral. If you have everything that is required and provide all the documentations needed, getting approved for a logbook loan is guaranteed. On the flipside, missing one or two documents could see your application rejected.
Risks associated with logbook loans
While logbook loans offer bad credit individuals with an opportunity to get access to loans without their credit rating being an impediment, there are two main risks associated with logbook loans. The first risk is the aspect of cost. Logbook loans are a tad expensive compared to traditional loans. 400% is the average APR for a logbook loan which means more often than not, a person ends up repaying more than twice the principal amount. The second main risk which gives most people sleepless nights is car repossession. Basically, once you sign off your car to the lender, they become the owners of the car until you clear the outstanding loan amount. When you are unable to repay the loan, the lender has the legal right to repossess your car and even dispose of it if they so wish.