Are there any risks to applying for a logbook loan?

If you have never applied for a logbook loan or have scanty information on logbook loans, you definitely have pondered over the above question. Let’s face it. Logbook loans have given those with a poor credit rating an opportunity to get access to loan facilities without having to sweat over it. So long as you own a car and are above the age of 18 years, getting access to a loan is no longer a tall order even if your credit score is worse. With your car as collateral, you can now get access to a loan up to 70% value of your car. While this is laudable, are there any risks to applying for a logbook loan?

Car repossession

The agreement when taking up a logbook loan is that you should be able to make repayments according to agreement. In the event that you are unable to meet your monthly obligations, your lender has the legal mandate to repossess your car and sell it to recover the loan amount they advanced to you. As such, it is always important to meet your monthly obligations lest you lose your car.

No consumer protection

If you have purchased anything on hire purchase, then you know that there is consumer protection agreement. However, this is not the case when you take out a logbook loan. Once you sign the bill of sale agreement, your lender becomes the legal owner of your car until such a time you clear your loan. Should you be unable, the lender has the legal mandate to sell your car without even seeking for a court order.

High interest rates

Logbook loans attract very high interest rates as compared to unsecured loans and therefore expect to pay more than twice the principal amount. Of course, this is a great risk especially if you run into problems repaying the loan. It will simply mean that your loan will skyrocket and make the situation worse than it already is. If you are not careful, you might find yourself steeped deep in debt which of course is not a pleasant thing.

Legal action

Should the sale of your car upon default be unable to cover the principal amount of the loan together with interest, your lender can take legal action to have you pay up the shortfall. This route is often taken if you are uncooperative and efforts to have an out of court settlement have been futile.