Using Logbook Loans Safely

There's been a lot in the media about logbook loans and people getting into trouble with them. So what should you do if you're considering getting one?

Many people have no problems with their logbook loan but some fall foul of some aspects of the loan. The first thing to remember is that the interest rates are much higher than on a normal loan. They are certainly lower than a payday loan because you use your car as collateral but logbook loans can be between 400% and 600% APR.

As they are designed to be relatively short loans of around 18 months the amount you need to pay back each month can be quite high which is where the problems usually set in if it becomes a struggle to afford the repayments.

When you sign on the dotted line for your logbook loan the finance company gains temporary ownership of your car via a bill of sale. You will still be able to drive around in it but now they own it until the debt is paid.

Under the Consumer Credit Act a car can't be seized without a court order. But a bill of sale negates your rights and means the company can seize your car if the loan isn't paid. If you miss a payment or two then technically your car can be seized and sold to pay off your debt very quickly leaving you with no car.

To reduce your chances of any problems you need to appreciate how much you will be paying back in total and you need to know how much your weekly repayments will be. If you don't think you can afford the repayments then don't take out the logbook loan as you might as well simply sell your car instead.

Those who have benefited from using logbook loans are usually those who have needed to cover an unexpected, short term problem. Paying off the loan early is an excellent idea if you can manage it. If you hope to do this then look around for companies that offer the best early settlement deals.

Whatever you do don't blindly wander in and get a logbook loan, think about it first. Be one of those people who have used their loan successfully to help them through a crisis.