Financial trauma can happen to the best of people. A combination of annual expenses can come due at the same time as other pressing bills. Taxes could be higher than expected. Personal emergencies resulting in late payments can damage your credit. A lack of financial knowledge could also be the primary culprit. Whatever the reason, there are loan options available for people with poor credit, and one of these is called a logbook loan.
What Is a Logbook Loan?
Bank loans are based on the individual’s income and credit history. A better credit history and score results in better terms, such as lower interest rates or reduced fees, and a higher income will allow the bank to offer larger loan packages. The problem is that banks impose a cut-off point. Logbook loans extend beyond this cut-off point by allowing you to substitute collateral, namely your auto, in lieu of the credit history. The lender uses the value of the auto to propose a maximum loan package and holds the logbook in case of default. You will only need proof of income and your vehicle’s logbook to receive a loan.
What Are the Terms?
Logbook loans are typically processed quickly. In some cases approval may take as little as 15 minutes, and money can be in your account within 24 hours. Some people who are eligible for bank loans may still choose a logbook loan due to the added convenience.
Considering interest rates, you may immediately draw the conclusion that logbook loans are a raw deal. The fact is that higher rates are a reflection of the lender’s increased risk. The annual interest rate is typically in excess of 100 percent, and the representative APR, which is total amount paid over maximum duration, is often just below 350 percent. However, logbook loans rarely apply penalties for consumers who pay their loan faster than the total duration. Most require between 10 and 15 weeks of payments, and overpayments may be applied to capital. You should fully investigate these issues before accepting a logbook loan.
How Can a Borrower Manage Risk to Prevent Default?
With minimum payments over the maximum duration of the loan, a borrower can expect to repay over three times the initial loan amount. This fact and the nature of the loan points to the need for consumers to carefully plan their loan ahead of time. Aside from identifying a reputable lender, you will need to answer two questions in detail. How much money do you need and for what purpose? How quickly can you expect to repay the loan?
These two questions are closely related. The more immediate and important the purpose is, the less you may worry about fast repayment. The faster you can repay the loan, the less you may worry about analyzing its necessity. Regardless of the situation, you should use a household budget to determine payments and the maximum cost of the loan.
Logbook lenders extend the same logic of banks to a higher risk demographic. The terms reflect this risk, and you should understand them fully before risking your collateral.
Joel Shropshire is a freelance blogger who investigates ways to help you get money in an emergency. If you ever asked the question “What are logbook loans?” then Joel recommends that you click here to find out more.
