Once you decide to go for a logbook loan, it is important to appreciate the risks that lay ahead. In many cases, it is considered the credit of last resort because most financial institutions have declined loan applications. Like financial experts point, the logbook loan should only be used with a lot of caution. In this post, we look at five key things that can make you sink deeper into financial trouble after taking a logbook loan.
Prioritizing payment of other less risky loans while giving less focus to the logbook loan
The moment the lender approves your logbook loan, it is important to appreciate that a lot of dangers lay ahead. Because you have already given away the car documents, the risk of losing it becomes real. Failing to prioritize the logbook loan when repaying other bills can only worsen your present credit situation. While other debts need to be cleared as fast as possible, those that do not come with a lot of threats can wait until the riskier logbook loan is cleared. For example, the student loan can wait for a couple of months because it does not attract any interest and no collateral is attached to it.
Taking the maximum that the lender has to offer as opposed to what you need
For many people who have been declined loans by banks, a chance to borrow looks God sent. However, this is a trap that makes most people to nosedive into the sea of trouble within no time. Even if the lender is willing to offer £30,000, but you only need £2,000, consider going for what is needed only.
A bigger logbook loan means that you will repay for a longer time with higher interest rate. Repaying a lot of cash every month for a long time is bound to cause fatigue and raise the chances of defaulting.
Hiding from the lender when meeting monthly payment becomes difficult
If you realize that the sources of revenue are having issues and meeting the monthly repayment is becoming difficult, running away will only worsen the situation. The loan will accrue a lot of interest, and the lender will start looking for the car to recover the money. Instead of running away, it is advisable to visit the lender and tell him what you are going through. Though some additional interest might be incurred, some good lenders will even allow you to readjust the repayment amount for a few months until your issues are resolved.
Failing to relook at personal spending and reworking on the budget
Financial experts in the UK and banking institutions have found that many people get into trouble with personal finance because of poor budgeting. This problem can make things worse by drawing you deeper into the turmoil of debt.
After getting a logbook loan, it is important to relook at your budget from a different angle to help release some cash. If you find it difficult to achieve this alone, make sure to seek help from a financial expert. A good budget will help you to look at personal finances from a long-term perspective.
Looking at the logbook loan in isolation
Personal finance is not about the logbook loan only. To reach financial freedom, it is important to have a bigger picture and factor the loan in the budget. If you look at the logbook loan in isolation, the chances of sliding back into the situation you are in are very high. When drawing a financial strategy, experts advise clients to look beyond the logbook loan and other credits. For example, the austerity measures you adopt should be implemented to help clear the loan, build an emergency fund, finance personal businesses, and create new lines of revenue.