In these tough recession times, many of us find ourselves short of cash sometimes. An annual bill comes through, or something breaks and needs to be repaired. If your monthly pay only covers you normal outgoings with little left over it can be difficult to manage these unexpected expenses.
In recent years we’ve seen the market flooded with so called payday lenders offering people fast cash with few questions asked. The risks are well publicised and regulators are starting to take notice of these companies (just this morning an ad has been removed from UK TV for suggesting that payday loans are a good way to fund a better lifestyle).
However a less publicised but equally risky source of instant cash is increasing in popularity and it’s good for you to understand what it is and why you should avoid it.
A log book loan is a short term loan which is secured against your car. You hand over the log book to the lender in return for cash, so they effectively own the car while you’re making repayments. You can still drive the vehicle but as you don’t have the log book in your possession you are exposed to risks.
As you have handed ownership over to the lender you are in a vulnerable position. If you are involved in a crash, or if the car is stolen, the lender will still expect you to repay the money they’ve lent to you, even though you no longer have a car. And because they hold the log book it could be difficult for you to claim insurance.
Additionally, many lenders are not very sympathetic or ethical when it comes to repossessions. The car is effectively their property so they can repossess when they like. There have been stories of people missing one repayment and having their car taken away.
It is the repayments themselves, though, which are one of the biggest problems with log book loans. Like with payday loans, you will most likely find yourself being charged a very high rate of interest. It might seem like a good deal to suddenly get a couple of grand in cash and repay around £60 a week, but you will end up paying maybe triple what you originally borrowed, or more. Also, if you miss even one payment you will quickly find the interest spiralling out of control.
Log book loans are not covered by the same levels of protection as other types of credit so if things go wrong you don’t have many rights. The contracts are often deliberately confusing, so what might seem like a straightforward loan is actually quite complicated and designed to get the most money possible out of you.
When it comes to cars and finance you need to be careful because you could have your means of transport taken away from you, and still have repayments to make, leaving you in debt and with no car.