How logbook loans can indeed get you into debt
The reality of the matter is that we all have been in a situation where we needed cash urgently. We all agree that financial emergencies are part and parcel of life and when they rear their ugly head, we need to have some form of backup. Unfortunately, for most people, getting cash within hours from high street banks is a tall order. Add to that the fact that you have to deal with a mountain of paperwork and you will understand why logbook loans are increasingly becoming popular.
In simple terms, a logbook loan refers to a type of loan where you essentially sign over your cars logbook (V5 document) to your lender as security in return for an amount of money you need. You continue to keep possession of the car for the entire period of the loan but your lender becomes the temporal owner of the loan. While you still enjoy the services of your car, failure to meet repayments as agreed could lead you to lose possession of the vehicle.
But how can logbook loans get you into debt? This is a question you need to ask yourself before you set out to apply for a logbook loan. You need to be cognizant of the fact that applying or taking out a logbook loan is a considerably expensive endeavour. The average percentage rate (APR) for logbook loans is 400% which essentially means that you will end up repaying more than twice the principal amount you borrowed. Add to this the fact that any defaults along the way leads to further penalties and fees and you get the concept as to why logbook loans are indeed an expensive undertaking.
The repayment period for a logbook loan is ordinarily around 78 weeks. That period is sufficient enough for most people though the devil as usual, lies in the details. Failure to read the fine print could be at your disadvantage as you might realize later on that the amount you were meant to believe you will repay is not the actual amount you will repay. Add to that the fact that most lenders dangle the carrot of loan top up if you are always repaying on time and you understand why logbook loans might actually get you in a debt rut.
What happens is that certain logbook lenders encourage you to keep borrowing especially if you are timely with repayments and rarely default. The result is that is you never really get out of debt and should something happen and you fail a payment or two, that’s when you realize that you are knee deep into debt. As such, it’s important that you take out a logbook loan with a clear head and avoid the loopholes that could eventually lead you into a debt rut.