One of the most popular short term financing options for borrowers with bad credit scores in the UK is a logbook loan. Without the credit check requirement, borrowers who have been rejected for a personal loan by major lenders can resort to the financial product for unexpected financial emergencies. All you need to be eligible for a logbook loan is a vehicle, which you can use for collateral.
How logbook loans work
Eligible lenders can borrow anywhere from £500 to £50,000 with repayment terms from 12 months to 36 months. With its flexible loan amounts, it’s no surprise why logbook loans continue to be a very popular option for many borrowers across UK. But while accessible and fast to avail, logbook loans are not without its downsides. If you’re thinking of applying for a logbook loan, knowing how exactly the product works is imperative.
To take out a logbook loan, you need to own a vehicle that will serve as collateral for said loan. In general, lenders will require for the vehicle to be financing free. Some lenders may also specify the maximum age of the vehicle to be acceptable. If deemed eligible for the loan, your lender will require the borrower to provide their logbook document as well as the MOT certificate and insurance details. Borrowers are also required to sign a “bill of sale” agreement.
Risk of Repossession
Once approved for a logbook loan, your lender is the temporary owner of your vehicle until the loan is fully paid off. In other words, your vehicle is now at risk of repossession. There is the possibility of losing your car in the event that you cannot keep up with the monthly repayments. As stated on the debt agreement and “bill of sale” document, your lender has the legal right to repossess your car if you are unable to repay the loan.
Repossession, fortunately, is not the first action lenders impose in case of nonpayment. If you missed a couple of payments, the first step is for lenders to send out a debt collector to hound you for payments. Many lenders will also contact you to discuss the details of your loan and payment. After several attempts and you are still unable to repay the loan, this is when lenders exercise their legal right to repossess the vehicle. The lender will still give you another chance to update your payments. After the set time has lapsed, the lender can sell the vehicle to cover for your outstanding balance. If the resale value does not cover your liabilities, your lender will still go after you for payment.
With the risks involved with borrowing a logbook loan, borrowers are advised to take extra caution. In fact, it would be best to consider only taking out a logbook loan as a last resort. Only after you’ve exhausted other options should you resort to this type of loan since the cost and risks involved are very high. Click here for more tips on how to be a responsible borrower.