The risks that come with taking a logbook loan are numerous. As an option of last resort, logbook loans have become synonymous to high-interest rates, regular depression for borrowers, and the ultimate reality of having the car repossessed. With the family car being the second most important asset after the house in most cases, the risks involved can be too dire. In this post, we evaluate five ways you can reduce the risks that come with logbook loans.
Shop for the lender with lowest APR
While most logbook loans come with high annual percentage rates, the variation between different companies is very high. You can get a company that charges as high as 420% while another one only does 100%. It is, therefore, very important to look for the lender with lower interest rates to keep the burden of repayment lower.
Avoid penalties on early payments by carefully reviewing the agreement
If you read carefully through many logbook loan agreements, there are clauses that limit borrowers to repaying the credit only during stipulated timeframes. This means that if you have committed to clearing the loan in 24 months, there is no option of repaying earlier. You can note such offensive clauses by carefully reading through the agreement and insisting they are removed before signing. A good logbook loan dealer will even motivate you to clear the loan faster with reduced interest.
Prioritize the logbook loan repayment compared to other lines of credit
After taking a logbook loan, you need to appreciate that the dangers that come with defaulting are higher compared to other forms of credit. For example, if you have a credit card loan, it will only accrue interest, but no one will come for the family car or threaten to sell the house. However, defaulting on the logbook loan means that your car will be repossessed and sold. In fact, it could be worse than repossession and auction. If the lender sells the car but fetches less than the remaining loan balance, you will still be followed to clear the balance. It is, therefore, very critical to prioritize the logbook loan to avoid repossession.
Stay in touch with the lender and build trust
Every lender, from banks to logbook loan dealers, wants to deal with clients they can trust. This means being in touch and following the agreement for repayment. Even if you encounter some hitches with repayment for a couple of months, the trust between the two parties will make it easy to renegotiate the terms. For example, if you are late to remit the monthly payment because of delays on your salary, the lender will appreciate and allow you to fix it without repossessing the vehicle.
Ask your bank to make direct payment to the lender every month before the due date
Because of busy working schedules, it is not uncommon to find borrowers forgetting to remit money for their logbook loans. Others only remember when it is very late and ends up incurring unnecessary penalties. However, you can avoid these additional costs and risks by asking your bank to remit the cash every month a couple of days before the due date. The bank will only notify you that the payment has been made so that you can concentrate on other tasks and optimize personal output at the workplace.
While the logbook loans are options of the last resort, it is important to understand them and avoid falling deeper into financial troubles. By avoiding the risks using the outlined measures, you can plug the current financial gap and emerge stronger.