Is a Logbook Loan Too Risky?
Many people may not have heard of a logbook loan as it may come under different names. Basically it is a loan where you use your car as collateral. What happens is the lender will take a look at your car and value it. They will then find out if any other money is owed on the car and then calculated what value is left in the car and lend a percentage of that. Therefore how much they are prepared to lend you will all depend on the value of the car and if you have any other car loans.
The fact that they have some collateral means that they will lend you the money at a more competitive rate than some other types of loan. However, there are other more competitive rates out there, so it is wise to compare and see whether you can get something better. You may like to compare different loan types or different logbook loan companies to try to get the best possible deal that you can.
A logbook loan can be good if you need some money in an emergency and can find no other cheaper way of borrowing money. However, there are risks associated with it, like there are with any form of lending. As you are using the car as collateral, if you do not manage to make the repayments then the car can get taken and sold by the lender. They will use the money that they make by selling the car to pay off the loan as well as any other money owed on the car and there will not be anything left for you.
Therefore it is extremely important to make sure that you are confident that you will be able to manage the loan repayments. This will depend on many things such as your income, job stability, repayment amount etc. You will need to think through whether you feel that you will be able to manage those payments every month until the loan is paid off. It is worth thinking hard about it, particularly if losing your car is a scary prospect.
If you need your car for work, then it could be really bad if it is taken off you because you cannot repay the loan. This will mean that not only will you have lost your car but you will also have lost your job. Although the outstanding loan will be gone, you will really struggle without an income and so it could just be too big a risk to put your car up against a loan. Even if you are really confident that you will be able to repay the loan, it is a big risk that if something unpredictable happens that means you are unable to repay the loan, then you will be stuck without a car or job.
If you do not use the car for work or there would be an alternative way to get to work without a car, then you will not be quite so risky with a loan like this. However, it is worth thinking through the things that you use your car for and whether you are prepared to risk not being able to drive on these occasions. You could use it for the school run, to visit friends and relatives, for trips and holidays, for shopping or many other reasons. It could make your life very difficult and you may even feel cut off if you do not have a car.
The actual risk of a loan like this cannot calculated easily. It will all depend on an individuals circumstances. It is wise to think hard about whether you really need the loan and what would happen if you could not pay it and the car was taken. Consider whether you could cope without a car and how it would have an effect on your daily life if you had to manage without one. If you feel that you would not be able to manage easily, then you will be best to no have a loan of this sort. IA car can make such a huge impact on your life that losing it could be massive. It could be even bigger than if you have your house repossessed when not managing the mortgage as you could at least rent somewhere as an alternative but you cannot rent a car cheaply enough to use it as an alternative to ownership and so it could be even more difficult.
In most cases it is probably likely that a logbook loan would be a big risk. Only if you do not rely on your car or if you feel there is no chance that you would miss any repayments then should it be considered. It is worth thinking about whether you really need the loan, what the alternatives are and whether you ca find a better and less risky option. Even if you have to pay more for a less risky option, it could be worth it.