Given the increasing cost of living, financial commitments might be hard to meet at one point in your financial journey. And sometimes, you might need a quick solution to help you meet an urgent monetary need like a medical emergency, a quick investment need, etc.
Due to their flexibility and efficiency, a logbook loan might come in handy at such times. However, just like anything in life, it helps to understand the advantages and disadvantages of logbook loans to know what you are getting yourself into.
Hence, this article highlights some of the main advantages and disadvantages of logbook loans that you should know before you consider taking the loan.
In Kenya, logbook loan lenders are currently sprouting up everywhere. Even a quick google search will give you a variety of options, making logbook loans a readily available option (assuming you own a car) compared to other loans.
When you require cash urgently, all you need is to be eligible and have a car, then find a lender and send in your application. You can apply online or in-person and expect your application confirmation quickly.
Most logbook loan lenders take a maximum of 24 hours to process and send you money after receiving your loan application. Provided that you meet the minimum requirements and have the required documents ready, most lenders offer a 24-hour turnaround from application to approval.
Due to the growing competition in the logbook lending industry, there is a high demand for swift and convenient lenders that can meet customer demands. So lenders are striving to be flexible, effective, and efficient in order to get borrowers to sign up.
Unlike other loans, like payday loans or digital loans, the amount you can borrow is flexible. The loan is based on the value of your vehicle, and you can, therefore, borrow as much as you need up to 50-80% of your car value - depending on the lender.
In general, the minimum loan size is as low as Ksh50,000, and the maximum for some providers goes to Ksh25M- depending on your car value. This means that a logbook loan can help you meet various financial needs.
Whether it is a small medical emergency that needs just a small fraction of the value of your vehicle or an investment that requires 70% of the value, a logbook loan can make an ideal quick financial solution.
Typically, a lender will check your credit history to determine your creditworthiness. This is especially a crucial step for loans such as unsecured loans.
However, most logbook lenders only require proof of ownership of your vehicle, a valuation certificate, and proof that you are eligible to get approved for a loan. But it is important to note that this depends on the lender, and some lenders will, nevertheless, check your credit history.
Some loans, such as business loans, have limitations on what the loan money can be used for. For instance, it would be considered a breach of the loan contract to use a loan meant for an equipment purchase to pay salaries.
Logbook loans do not have these limitations. You can use it to cover whatever costs you need to, provided you have a plan to repay it in full.
A logbook loan is a secured loan. You temporarily jointly own the vehicle with the lender when you sign a logbook loan agreement. As such, if you default on your loan, the lender has the right to repossess and sell the vehicle to recover the remaining loan amount.
This implies that the lender holds the bill of sale to your car and the right to repossess it if your loan is considered defaulted - you skip payments or do not pay at all.
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.
Logbook loans' cost of credit is often considered more favorable than some digital loans. However, logbook loans may charge a higher interest rate than other personal loan types - potentially making them quite expensive. As a result, you might need to dig a lot deeper in your pocket to repay the loan.
Digital loans are arguably the quickest source of funds. However, most digital lenders qualify you for a lower amount - sometimes as low as Ksh. 500 - and continue to raise the amount as you continue to maintain a good credit history.
Hence, a logbook loan might be your only option to get a minimum of Ksh. 50,000 urgently, assuming you do not have an existing relationship with a lender - at least six months.
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.
Some lenders attach a penalty for any inconvenience caused. For example, 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.
Lenders will also charge a penalty if you default on the loan and they have to repossess the vehicle and sell it. This is to cover the cost of the whole process - from towing the car to listing it and finding a buyer to buy it.
Therefore, ensure you read and understand all the finer details of the agreement before you sign it.
You surely need to have a car to qualify for a logbook loan. In addition, the said car need to be free of other types of financing.
For example, you can not qualify for a logbook loan if you have an asset financing loan from a bank with the car as collateral, unless you have already cleared the loan and transferred the vehicle to yourself as full ownership.
Like all other types of loans, logbook loans have pros and cons, as seen above. So if you are interested in logbook loans, this article gives you a great perspective to help you make an informed decision.