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Logbook loans can be hard to understand - let us help clarify things.
A logbook loan is a type of loan that uses your motor vehicle as security - a car, van, tractor, or motorbike. It allows you to borrow an agreed amount from the lender against the value of your vehicle. In return, the vehicle ownership is temporarily transferred into joint ownership with the lender until you fully repay the loan plus interest.
To secure the loan, you provide the lender with the vehicle ownership documents - the logbook. During the loan period, you can continue using the vehicle normally.
However, a logbook loan should not be confused with a vehicle loan (asset financing). A vehicle loan is a loan that allows you to finance the purchase of a vehicle (if you can’t afford it or are not willing to purchase it in cash). In contrast, a logbook loan allows you to take a loan using an existing vehicle as collateral.
Logbook loans are offered by a wide range of microfinance institutions (MFIs) and are also beginning to be offered by some commercial banks. Many of these MFIs have branches all across Kenya.
There are many reasons why logbook loans are persistently gaining popularity currently. These include:
There are many things to consider before taking a Logbook Loan. These include:
In addition to the quoted interest rate to the loan, other common fees to have in mind include:
These are the common fees across all lenders, however, some firms have additional fees, such as legal fees. Use the Money254 logbook loan comparison tool to compare the full fee structures between different logbook loans in the market.
Although a logbook loan might come in handy when you need it, they carry a few risks and may not be your first option when you are looking to borrow urgently. The risks include:
Logbook loans may charge a higher interest rate than other personal loan types, potentially making them some of the most expensive loans in the market today.
As such, you might need to dig a lot deeper in your pocket to repay the loan.
That said, a logbook loan may be the only option for someone to get at least more than Ksh50,000 in under 24 hours if they do not have a relationship with a lender for a period of at least 6 months.
One of the quickest loan options is a digital loan. But the amounts start from as low as Ksh500 and take you a while to raise your limit.
So, if you do not have a bank account with an appropriate balance for about six months, are not a Sacco member, do not have a big loan limit with a digital lender, etc, a logbook loan may be the fastest way to get a large amount of money.
Like any other secured loan, the lender has the right to repossess the collateral in the event that you default on your repayments. This is because the minute you sign the loan agreement, you temporarily jointly own the vehicle with the lender.
This means that the lender has the bill of sale to your car and the right to repossess the vehicle if you fail to repay the loan - If you miss payments for a predetermined number of successive months.
If you feel like you are struggling to repay, you can always reach out to your lender and work with them on a repayment plan to avoid losing your car.
The lender has the right to charge you a penalty if you miss a payment. This is to cover for the inconveniences of the repayments missed.
To find out the rates for the penalty, ensure to carefully read the fine prints on the loan agreement before you sign.
Logbook loans are available to anyone who owns a private, commercial, or passenger service car depending on the specifications of the individual lender.
You will be needed to provide your logbook and other registration documents to show ownership of the vehicle as part of the loan application and approval procedure. The lender will then do a valuation of your vehicle to determine the amount you are eligible to borrow. The lender will also ensure that the vehicle is clear of any other financial obligations i.e. whether it has been used as collateral for another active loan.
As part of the procedure, some personal information will be required, such as your income. Other logbook lenders insist on a physical address as well as your CRB standing, pay slips and bank statements.
Each logbook lender has its own set of qualification requirements for who can acquire a logbook loan. However, in general, you may be eligible for a logbook loan provided you meet the following criteria:
The exact amounts may vary between lenders. The amount a lender is willing to lend to you is determined by the Forced Sale Value of your car - that is the sale price the car can reasonably go for if it was put on sale for a period too short to allow for proper marketing.
Among logbook loan lenders in Kenya, you can qualify for as low as Ksh50,000 to a maximum of Ksh25 million.
However, in general, the more valuable your car, the more money you can borrow. In most cases, you can get from 50% of the value of your vehicle, with some lenders giving up to 80% of the value of your car.
Also, note that newer cars get a higher percentage compared to older cars.
Once the qualification and application processes are completed, the amount you wish to borrow is deposited into your account and just like the amount, the disbursement duration also varies across different lenders.
Some lenders promise to disburse the money as quickly as 6 hours, some 24 hours and others go up to a couple of days depending on their terms and conditions. You can use the Money254 logbook loan comparison tool to compare the disbursement time for different lenders.
The interest rates for logbook loans vary by institution and range from 1.6% to 10% per month. You can use the Money254 logbook loan comparison tool to compare the interest rate and full fee breakdowns between different logbook loans offered in Kenya today.
Other common costs associated with logbook loans include: processing fees, Valuation, NTSA logbook discharge, car tracker and comprehensive insurance cover if you do not have one.
Other costs not common across all lenders are legal fees, CRB charges, application fees and bank disbursement fees.
Yes, you can use your car normally. You are completely responsible for the vehicle's insurance and maintenance. The only difference is that the loan is secured against the vehicle, and you will not be allowed to sell it until the debt is paid off.
If you are experiencing financial difficulties and are unable to make your monthly payments on time, you can reach out to your loan provider and work out an extension plan.
If you default and you fail to make any kind of commitment or late repayment plan with your logbook loan provider, you will receive a demand letter and be given some more time (14 days in most cases) to make your repayments, but if you completely fail to react, the logbook loan provider will start the process of repossessing your car.
One of the biggest reasons why logbook loans are popular in Kenya is because of the incredibly fast speeds in which funds can be accessed. Many logbook loan providers in Kenya, given the right circumstances, say they can disburse a loan in less than 24 hours from the time of first interacting with a client.