It is hard to believe that you secure a small loan worth £1,000, especially when a lot of lenders are out there providing you small loans without a hard credit check at flexible terms. Unfortunately, the real picture is not as beautiful as it sounds. Payday loans, which carry very high-interest rates, not that they are aimed at subprime borrowers, but because of their high-risk feature due to their very short repayment periods, cannot, in most cases, let you qualify for more than £500.

It means if you want to borrow more than that, most of the lenders will close their doors. Your poor credit report will eventually become a snag. Although the size of personal loans can be up to £5,000 and even more depending on the policy of a lender, their target audience is good credit borrowers, so you are out of the race if your credit rating is not up to snuff.

Does that mean you do not have a way to qualify for a loan? No, you still have an option to borrow money and here comes a logbook loan.

What is a logbook loan?

 Logbook loans, known as V5 loans, are secured against your car that is at risk of repossession in case you fail to pay off your debt. The maximum amount you can get through these loans is up to £5,000 despite a bad credit rating. 

The lending sum will be decided based on the current demand and importance of your car. Bearing in mind the depreciating nature of your car, some lenders will sign off on only half of the car’s value. 

What do you require to fetch logbook loans?

Logbook loans are generally available from online lenders. Even for a small sum like £1,000, you can bring out these loans. In fact, some lenders can allow you to borrow less than that in case you are in quick need of money and cannot afford to pay off payday loans. 

You will have to sign an agreement, called a bill of sale, to temporarily transfer the ownership of your car to your lender and, hence the right to take back your car in case you make a default, which can be executed without the court’s approval if the bill of sale is registered with the High Court. If not, they will have to proceed to court to seek approval. 

Do not forget that you will have to give documents to your lender to prove that you are a registered owner of your car. Once the process is completed, you will get money directly into your account.  At that time, your lender will give information on your credit terms, interest rates and the size of monthly payments.

What are the advantages of logbook loans?

Here are the pros of logbook loans:

  • You can pay it off before the time

Most of the loans cannot be paid off before time, and if you do so, you will end up paying early repayment fees. However, this is not the case with logbook loans. You can pay them off on time without worrying about early repayment charges.

  • You can borrow money quickly

Even though you are borrowing a larger sum, say, £5,000, you can get these loans faster. The processing of these loans is much faster than other secured or unsecured loans. You can get funds even in an hour.

  • Weekly repayment option

If you borrow a larger sum, your loan can be spread across months. However, if the amount is small, like £1,000, you can opt for weekly payments. This will make it much easier for you to manage your debt faster and more smoothly.

  • No credit check

The good thing about these loans is that you can take out these loans without a credit check, and therefore, lenders do not bother about your bad credit history. They are willing to give you the nod despite a bad credit rating, as they have the right to take your car back in case you fail to keep up with payments.

Why logbook loans can be risky?

Though logbook loans allow you to take out a loan – mainly a larger sum despite a bad credit score – you should take into account your affordability as you can lose your car.

  • They are expensive

APR rates on logbook loans, despite being secured against a car, can be up to 400%. However, compared to payday loans and doorstep loans, it is much lower. Further, these loans will allow you to borrow a larger sum.

  • You are at risk of losing your car

If you cannot keep up with payments, not only will you lose your credit score, but you will also lose your car. Your lender reserves the right to repossess your car to get their money back. Your credit score can be dramatically affected by your default. It will make it more complicated for you to borrow money down the line.  

  • No auto debits

Most of the loans are paid off through a direct debit system. Still, when it comes to logbook loans, lenders will avoid putting you on auto debit mode, which means you will have to take up the responsibility of clearing dues that can be a big headache if they are made every week. If the due date slips your mind, you will end up facing dire consequences.

To sum up

Logbook loans are secured against your car and can let you borrow between £50 and £5,000. You do not need to worry about losing your credit score as they do not involve a credit check. The APR of these loans are quite high but relatively lower than payday loans and cash loans.

In case you fail to keep up with payments, you will lose your car to your lender. Bear in mind that though these loans can let you borrow up to £5,000, it is not necessary that you qualify for that sum. Since the car is a depreciating asset, lenders will be reluctant to offer you more than half of the current market value of your car. Be careful while using these loans.

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