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Applying for Your First Logbook Loan? Here's What You Should Know
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Applying for Your First Logbook Loan? Here's What You Should Know

When financial uncertainties loom, and you find yourself in need of quick cash, logbook loans can be a lifeline for car owners. This secured debt option utilizes your vehicle as collateral, offering a swift solution to financial binds.

The accessibility and relatively straightforward qualification process make it an attractive option for car owners in a financial fix. However, before diving headfirst, it's crucial to grasp the intricacies of logbook loans.

Below, Money254 explains the basics of logbook loans you need to thoroughly understand before you make your first loan application.  

Read Also: I Want to Take a Logbook Loan to Support My Business. Should I?

Understand the Eligibility Criteria 

When considering your first logbook loan, understanding the eligibility criteria and lender requirements is crucial to ensure a smooth application process.

The car must be registered in your name to be eligible, and you should possess the legal documents proving your ownership. You will need the original vehicle logbook, a copy of your original National ID, and a copy of your KRA PIN. 

Credit history may not be a deal-breaker, as logbook loans are secured against the vehicle rather than your credit score. However, lenders may still assess your ability to repay the loan, so a steady income and employment status become significant eligibility factors. You may need to provide six months of certified bank & Mpesa statements and three to six most recent payslips. 

Understand How the Loan Amount is Calculated (Forced-Sale Value.) 

Unlike traditional loans, logbook loans are secured against your vehicle, and lenders usually advance a percentage of its value. However, they don't consider the market value of your car; instead, they focus on the forced sale value.

The forced sale value (FSV) represents the amount your vehicle could fetch in a quick sale, often at auction or under similar circumstances. As a result, the loan amount may be lower than expected based on the car's market value. 

How conservative the FSV will be will depend on the condition of your car and the opinion of the appraiser, who is often appointed by the lender. Typically, the FSV can be 10% to 30% less than the market value. 

Depending on other factors like your credit score, income, and loan term, lenders will offer you a loan amount equal to 50% to 80% of your car's FSV. 

So, if your car has a market value of Ksh1,000,000, it can have an FSV of Ksh800,000. The maximum loan amount you may qualify for will be Ksh640,000. 

Read Also: Logbook Loans: Understanding Market Value Vs Forced Sale Value 

Understand Logbook Loans Interest 

Logbook loans typically combine percentage-based charges and fixed fees, resulting in a variable Annual Percentage Rate (APR) based on the loan amount. Larger loans may be cheaper due to fixed fees. 

For a Ksh100,000 logbook loan from a Microfinance Institution (MFI) in Kenya, the APR can range from 40% to 99%. Logbook loans advertised monthly rates can vary from 3.%  to 5%.

Understanding these interest structures allows you to assess the true cost of borrowing and make informed decisions. Additionally, being aware of the APR and monthly rates aids in comparing different lenders and their offerings, and finding loans that align with your budget and needs. 

To determine the final interest, lenders will look at factors like your credit score, vehicle value, income/job stability, and the loan term. Additionally, you will be free to negotiate the interest rate with the lender. 

Know the Other Fees/Charges

While interest is a significant component, it is not the sole contributor to the overall cost of logbook loans. There are multiple upfront fees you may have to pay along the way. They include loan processing, logbook search, vehicle appraisal, NTSA in-charge, and car tracker fees. If your vehicle doesn't have comprehensive car insurance, you may also need to buy one. 

If you do not have the cash to pay all these fees upfront, some lenders might offer the option to: 

  • Deduct them from the disbursed amount: The fees are deducted directly from the loan amount before it is handed over to the borrower. This means that the borrower receives the remaining sum after these deductions. 
  • Capitalise into the loan: This means that the fees are added to the total loan amount, and borrowers repay them over the course of the loan term along with the principal amount and interest.

Apart from upfront fees, you should also be aware of some penalties including; 

  • Early Repayment Penalties: Some logbook loan agreements may have penalties for repaying the loan before the agreed-upon term. While it might seem counterintuitive to penalise early repayment, lenders may use these charges to compensate for the interest they would have earned over the remaining loan period. 
  • Late Repayment Penalties: Conversely, late repayment penalties are incurred when borrowers fail to make timely payments. These penalties are designed to encourage borrowers to adhere to the agreed-upon repayment schedule.
  • Violating Specific Loan Conditions: Loan agreements often come with specific conditions and covenants that borrowers must adhere to. This could include maintaining comprehensive insurance on the vehicle, not making modifications to the vehicle without notifying the lender, removing the car tracker, or other conditions outlined in the agreement.

Understand the NTSA Incharge Process 

In a logbook loan, you hand over ownership of your car, van, or motorcycle to the lender as collateral for the loan through a process known as the NTSA Incharge Process.

The NTSA in-charge process grants the lender a lien—a legal right or claim over your vehicle until you settle your debt. This lien provides the lender with a security interest in your vehicle, and it remains valid until the loan is entirely repaid. At that point, the lender is obligated to release the lien.

This requirement is in place to prevent you from selling the car before repaying the loan and allows the lender to legally sell the vehicle if you default on the loan or become a candidate for repossession.

You will retain possession of your vehicle and can continue using it. You regain complete vehicle ownership once you've fully paid off the loan.

Read Also: Logbook Loans: Should You Be Worried About Joint Ownership? 

Understand the Consequences of Defaulting 

Defaulting on a logbook loan can result in penalties, warning of repossession, and the accrual of late payment fees and increased interest rates. These factors significantly compound your financial burden.

In the unfortunate event of default, the lender can repossess your vehicle without a court order. The process involves seizing the vehicle, auctioning it, and selling it to recover the outstanding debt. Should the sale fall short of covering the entire loan amount, you could be sued and held liable for the remaining balance.

The consequences extend beyond your finances and can impact your daily life. Losing your vehicle, especially if it's your primary mode of transportation for work or business, can result in significant inconvenience and disruptions to your routine.

Finally, defaulting on a logbook loan can have lasting effects on your credit score, affecting your ability to secure future loans and financial opportunities.

Read Also: How to Lose Your Car in 2 Weeks After Taking a Logbook Loan

Understand How to Compare Lenders 

If you are going for a logbook loan, you want to ensure you get the best loan that aligns with your needs and financial situation. Finding the right lender is paramount for a smooth and cost-effective borrowing experience.

First, compare the interest rates different lenders offer and other fees they charge. The lower the total cost of credit, the easier and faster it will be to repay the loan.

Be mindful of hidden charges such as membership fees and loan disbursement fees. These additional costs can significantly impact the overall affordability of the loan. A seemingly low-interest loan may turn out to be more expensive due to these hidden fees. 

Second, consider the maximum amount the lender can offer you. This is dictated by the loan-to-value ratio, which determines the amount you can borrow against your vehicle's value. A higher ratio could mean more funds at your disposal, but be cautious not to overburden yourself.

Thirdly, compare the terms and conditions offered by different lenders. Pay attention to the payment period or loan tenure, understand the due dates – whether they are weekly, monthly, or follow a different schedule, and repayment flexibility (does the lender allow for early or lump-sum payments?)

Luckily, you can use Money254’s Free Logbook Loan Comparison Tool to easily and quickly compare top logbook loan lenders available in the Kenyan market to help you make the right choice. 

Read Also: Things to Look Out for When Comparing Logbook Loans 


While vehicle ownership can make you a candidate for a logbook loan, the most eligible person is the one who has done their homework. Taking any type of loan demands foresight and understanding of the borrowing process. 

Regardless of the urgency of your financial needs, remember responsible borrowing is paramount. Before you apply for a loan, assess your financial capacity thoroughly. In this case, your best allies are a well-thought-out budget, a clear understanding of your income, and a realistic repayment plan

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Farah Nurow is an experienced Content Writer who enjoys writing creative and educative articles meant to provoke readers' thoughts. He loves sunny weather and thick books. You can connect with him on LinkedIn.

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