When many people’s bank loans are declined, they run to other easier to access alternatives. The logbook loan is considered a good alternative because the requirements are subtle and the cash reaches the applicant’s bank account within 24 hours. However, logbook loans are the most expensive alternatives that people can take. If you opt for a logbook loan because of poor credit score, it is advisable to consider other alternatives before making the great decision.
The main problems with logbook loans
- Very high-interest rates: The main issue with logbook loan is very high-interest rates. Some companies have annual percentage interest rates of more than 400%. If you borrow £1,000 for 12 months at a flat rate of 96% and representative APR of 300.3%, the monthly repayment will be £163.34. The total charge for this loan will be £960.08; this means you pay a total of £1,960.08.
- The danger of getting the car recovered: If you fail to make the agreed payments every month, there is a risk of the car getting recovered by the lender. How fast the lender comes for the car depends on the agreement you signed when taking the loan.
Hidden impacts that can result from logbook loans
Though high-interest rates and risk of getting the car taken away are the most pronounced issues with logbook loans, there are additional implications that are equally dire.
- Implication on your credit score
While logbook loan companies do not factor a credit score when approving your application, the impact of nonrepayment can extend to it. Once you default, the lender will make a report to the credit reference bureau so that the status is reflected in the personal credit report. Note that once the report on poor repayment is submitted, it will remain there pulling the credit score down until the loan is cleared. This could turn out to be a bigger burden compared to the current financial status.
- Debt extending to your bank account
If you allowed the logbook loan lender to draw the monthly repayment automatically from the bank, there is a risk of drawing overdrafts to stay on top of the schedule. This means that you will have an additional credit to deal with in addition to the logbook loan. The report on the overdraft will ultimately be submitted to the credit reference agencies and further pull down the credit score.
- Getting sued in a court of law
If the lender recovers the car because of nonrepayment and sells it, there is a risk of being dragged into the courts. Because the borrower is not protected under the law, the lender can take him to court to recover the balance if the car is auctioned for an amount less than the loan balance. This could introduce additional costs related to the court battle that might hurt you financial status even further.
- Paying hidden penalties
Once you sign the agreement, it is important to be aware of additional costs that can be bundled to you during the repayment period. If the lender comes for the car because of noncompliance, the associated costs will be passed to you. Besides, additional charges that might be added to the debt include vehicle parking fees and cost related to selling the car.
For borrowers who want to get out of the problem faster by repaying the total amount in fewer months, the lender will also attach a penalty for it. Note that you will still be forced to clear the entire amount. For example, if the total amount borrowed was £1,000 and you are expected to repay a total of £1,960.08 by the end 12 months, the lender will still demand the full amount even when the debt is cleared within 6 months.