The Death of the Logbook Loan; Here Comes Vehicle Equity Release
31.10.2019 by Jack H
Logbook loans have long been considered a quick and easy way to get access to money when it's most needed. However, concerns about the methods used by logbook loan companies has led to a steady decline in their use, and alternative options are rapidly seeing logbook loans become the loan option that is best avoided.
What Are Logbook Loans?
When you take out a logbook loan, you receive your money by signing over the ownership of your car and lose access to your logbook. Although borrowers will still be able to use their vehicles, there are a number of important factors to consider. The first is that should you be unable to make your repayments then your car is simply repossessed. Even though the companies that provide logbook loans will play down this worst-case scenario, it can be remarkably easy for repossession to occur because of the way that logbook loans are designed. They have been called a toxic loan scheme with good reason, and the way that logbook loan companies operate has been called into question more than once.
Logbook Loan Use
One of the main reasons why fewer people than ever are choosing to take out a logbook loan is because of the high-risks that these loans come with. In recent times there has been a slight resurgence in people taking out fast loans, and logbook loans have been one of those types of loan that have had a slight increase in uptake. As people struggle in these tight financial times, logbook loans are a quick and easy way to get access to cash no matter how poor your credit score. For those struggling to make ends meet, worries about the risks of logbook loans are often dismissed. Yet, those concerns are very real. Logbook loans may be a relatively new type of fast loan but they are detrimentally bound by archaic laws. Logbook loans are inherently tied to the Bill of Sales Act, and that results in very little protection for the person borrowing money.
Logbook Loan Risks
Lenders in the logbook loan sector do not have the best reputation. Unlike other forms of loans that are accessible by using your vehicle as collateral, logbook loans are often exposed to a variety of issues and stresses that can be avoided by choosing an alternative type of loan. There are large key risks that have to be considered when taking out a logbook loan.
Losing ownership: The most obvious risk is that if you borrow money via a logbook loan and are unable to keep up with your repayments then your vehicle will be repossessed and sold. While this is a risk that seems fairly acceptable, it is actually a huge concern due to the other issues that are designed to make it harder to make those essential repayments. When you sign up for a logbook loan, the lender owns your car. Not only will you have to hand over your logbook, but you will also often have to transfer ownership of the vehicle into the lender's name.
While you will still be able to use your car, payment defaults will quickly see your car being taken away from you. Throw in the fact that you will then also be charged extra for repossession fees and paperwork, and the debts can really start to pile on top of one another. Of course, if your car is repossessed and sold for less than the amount that you owe, then you will need to pay off the difference, and with those hefty interest rates accumulating, the longer it takes to pay off your loan.
Massive interest rates: This is where the main risk lies in a logbook loan and the main reason why they are being avoided by even the most financially desperate. The rate of interest on a logbook loan can be terrifying when it is looked at. The average interest rate on a logbook loan can be as high as 500%. Even when you take into account that your repayments will also include covering any admin fees and charges, when interest rates can be found between 400% and 500%, that means massive repayments over short periods of time.
If you take out a £1000 logbook loan over two years at 400% APR, then you will end up paying an incredible £8000 in total. Those that take out logbook loans often do so because of the lack of a credit check, but that means lenders are taking what they consider to be high risk. With high risks come high-interest rates, and logbook loans are becoming less popular because of the safer and more professional alternatives.
Logbook loan company websites will have a lot of information available, and they will highlight the benefits. Fast cash and the lack of a credit check can be very tempting when you need money to recover from a financially challenging time. However, logbook loans leave you vulnerable to the bad practices of logbook loan providers. Not only will your credit score take a hit if you struggle to make payments and you run the risk of losing your car, but you may also have to deal with aggressive bailiffs (that you will end up paying the cost of). If you are in a financial position where taking out a logbook loan looks like your only option, then you need to look at alternatives. Logbook loans are a toxic option to consider, especially when there are safer loan types available that don’t leave you exposed to the bad practises and high risks of a logbook loan.
What is Vehicle Equity Release?
For most people, their vehicle is their second most valuable possession. After the home, cars, motorbikes, and even caravans are where people spend the most money. Of course, that expense will be tied up in the vehicle itself. Auto equity release schemes (also known as car equity loans) mean that people who are in need of a quick cash boost can take out a loan based on the value of their vehicle. They are very similar in structure to a mortgage. Your car is used as a form of collateral for the loan amount that you take out. That makes vehicle equity release a form of secured lending, and that is the major reason why this type of loan is becoming the safer alternative to high-risk logbook loans.
Benefits of Vehicle Equity Release Loans
When you compare this type of loan with a logbook loan, it can be hard to understand just why logbook loans are still being offered. The benefits of a vehicle equity release loan far outweigh the risks of a logbook loan. The death of the logbook loan is no surprise to those that have looked more closely at comparisons. The main benefits of a vehicle equity release loan include:
Flexibility: Just like payday loans, logbook loans are designed to cover short periods of time. That’s one of the reasons why logbook loan lenders feel obligated to have such massive interest rates. Vehicle equity loans offer a much broader flexibility. The repayment terms are going to be based more on your ability to pay back the amount that you have borrowed. That means smaller payments over a time period that suits your income. Because the amount of loan that you receive will be based on the value of your car, that means you get to gain access to that value without having to sell your car.
Ownership: One of the major reasons why vehicle equity release is such a big step up from logbook loans is that there is no point where you stop owning your vehicle. You don’t need to hand over the logbook and you certainly don’t need to transfer ownership of your vehicle to the lender. You get to keep your car and continue to use it even while using the money that would otherwise be tied up in the cost of that vehicle.
Acceptance: Just like logbook loans, vehicle equity release means that you don’t have to be concerned over your credit history. Often, you will need to fill out a basic form online and prove that you are the sole registered owner of the vehicle you are using as collateral. Even if you are still paying off your car, if it is in your ownership then you will be able to get a vehicle equity release loan.
The logbook loan is fast becoming a relic of the past. Even in this increasingly tense financial period, the risks of a logbook loan far outweigh the potential benefits. Losing your car, incurring massive debts, and exposing yourself to the shady practices of logbook loan companies can all be avoided. Take the time to understand your alternatives. There are other ways to get access to the money that you need to make ends meet. Vehicle equity release could be an option that not only keeps the wolf from the door but also keeps you far away from the death throes of the logbook loan and all of the negatives that come with it.