Understanding the Cost of Logbook Loans

Logbook loans continue to draw flak for its high cost. Some financial experts, for example, are discouraging borrowers from taking out a logbook loan because you may end up paying a hefty interest rate than what’s reasonable. Despite the warning, however, borrowers across UK continue to apply for the loan because it’s not only accessible but it offers larger loan amounts than unsecured loans.

If you were among the borrowers thinking of getting a logbook loan, it would help to better understand the most before signing any deal. Here is a quick quite explaining the cost and risk involved when you avail a logbook loan.

Representative APR

Representative APR, which also stands for annual percentage rate, is the financial concept used by lenders to help customers compare logbook loan deals. APR, at its simplest, will give you an estimate of how much your logbook loan will cost annually. The APR basically includes your loan’s annual interest rate, admin fee and other associated charges.

For logbook loans, the representative APR on average is 400%. Sometimes it could be lower and sometimes it can be higher depending on the deal you were able to snag. Compared with traditional personal loans, logbook loans are many times more expensive than other options. To illustrate, let’s say you want to borrow £850 for an overdue bill and rent. You want to repay the loan at an 18-month term. If the representative APR is 450.5% at a flat rate of 132% per annum, you will end up paying a total of £1,683 at the end of the term or £140.72 per month.

Fortunately, there are logbook loan deals with cheaper interest rates. One lender, for example, is offering loans from £500 to £5,000 at a representative APR of 180%. If you want to borrow £1,000 at an 18-month repayment term, the total amount you’ll be paying for the logbook loan is £2,050 or £113.89 per month. This is considering that the interest rate is 70% flat rate per annum.

For a better understanding of how APR affects the cost of your logbook loan, Money Saving Expert has more info for you.

Risk of Repossession

Other than the high interest rate, a logbook loan is even more costly because of the risk of repossession. Given that your loan is secured against your vehicle, you may lose your asset if you’re not careful. Lenders have the right to repossess your car as detailed on your debt agreement.The “bill of sale” document essentially transfers ownership to your lender thereby allowing them to sell it to cover for your outstanding balance.

Though there are high risks with logbook loans, repossession is often the last step lenders resort to. If you were unable to repay the loan, you can speak with your lender for a different payment arrangement. Just make sure you keep in touch and contact your lender right away if you think you can no longer handle the monthly dues.