Life often throws unexpected financial challenges at everyone. When this happens, the need for quick financial assistance becomes unavoidable, and you might resort to borrowing. If you are a car owner, a logbook loan can come in handy, offering a lifeline when your cash flow is tight or emergencies arise.
However, as time goes on, managing the loan repayment can become increasingly burdensome for various reasons. Perhaps your financial circumstances have shifted, or you've discovered more favorable terms from other lenders. In such moments, the thought of changing your lender might cross your mind. One way of achieving this is through a logbook loan buyoff.
If you have wondered how logbook loan buyoffs work in Kenya, you have come to the right place. This article will explore what logbook loan buyoffs are, when to take one, and the application process. Read on.
Read Also: When Does Taking a Logbook Loan Make Sense?
A logbook loan buyoff is a type of financial transaction in which a logbook loan issued by one financial institution is sold to another financial institution. In the process, a borrower transfers their outstanding loan balance from their current lender to another.
Let's look at an example:
Earlier this year, Robert, a 35-year-old businessman, faced a financial challenge when he needed extra cash for a crucial business project. He had initially borrowed Ksh300,000 from logbook lender “A,” a microfinance institution. After four months, he still owed Ksh200,000 to Lender A but needed another logbook loan to fund his project.
To address his financial needs, Robert sought a logbook loan buyoff from lender “B,” a microfinance bank offering him Ksh400,000. Lender B could "buy" his outstanding loan from Lender A and also offer him the extra amount.
With this new loan, Robert used Ksh200,000 to clear the outstanding debt with lender “A,” effectively transferring the loan balance to lender “B.” This allowed him to settle one loan and get extra cash. Robert then utilized the remaining Ksh200,000 to fund his business project.
Robert took a logbook buyoff loan because he wanted a loan top-up, but his original lender didn’t offer a top-up or refinancing option. This forced him to consider other lenders. But this isn’t the only reason for taking a logbook loan buyoff.
When taking any type of loan, you need a clear purpose so that you can develop a repayment plan, utilise the money as intended, and avoid financial strain. A logbook buyoff loan isn’t an exception. Here are some scenarios where logbook loans can come in handy:
You may require loan modification due to your financial circumstances changing, and you want to avoid car repossession or default. For instance, you might need a temporary pause in repayments if you are facing a period of financial hardship or a business downturn.
Getting a buyoff loan might offer more flexible terms, such as a repayment holiday, which your current lender might not provide. You can use this holiday to get your finances in order or to sell your car at its market value.
Extending the repayment tenure can help you manage your cash flow more effectively by reducing the monthly repayment amount.
Before taking this route, you should know that this may provide short-term financial relief, but it can lead to paying more in interest over time.
Lower interest rates can significantly reduce the overall cost of the loan. You can consider a logbook loan buyoff if your current lender has increased your interest rates or you have found a new lender offering significantly lower interest to justify a loan transfer.
A Logbook loan buyoff can be used to consolidate multiple loans or debts into a single loan. This can make it easier to manage debt, reduce the risk of missed payments, and get better terms in the process.
This is possible since you can borrow more than your outstanding logbook loan balance and use the extra amount to settle other debts, such as a personal loan or credit card balance.
Once you've made the decision to take a logbook loan buyoff, it's crucial to follow the correct procedure. This ensures a smooth and successful transition from your current lender to the new one. Additionally, you will be able to find a lender that aligns with your needs, avoid being overcharged, and protect your vehicle.
With that in mind, let’s break down the process:
Before applying for a logbook loan buyoff, review your current loan terms. Check for prepayment penalties or any clauses that detail the effects of early repayment.
Next, contact your lender to inform them of your intention to take a buyoff loan. Some lenders may inquire about your reasons, as they might be open to modifying your existing loan, lowering interest rates, or offering a top-up loan to retain your business. However, it's crucial not to settle without comparing offers from other lenders.
Once you have received the green light, you can proceed to find a logbook buyoff loan lender.
Logbook loan buyoff lenders typically consider the borrower's repayment history when evaluating loan applications. Therefore, ensure you maintain a good repayment history on your existing loan while searching for a new one. Missing payments can hurt your creditworthiness resulting in fines from current lenders, bad terms from future lenders, and loan denial.
Before starting the Logbook Loan Buyoff process, get and compare loan offers from various lenders. This step allows you to evaluate terms, interest rates, and conditions from different financial institutions, helping you find a loan that suits your needs and ensuring you make an informed decision.
You can use online tools such as Money254’s free logbook loan comparison tool to find a suitable lender depending on your needs.
Remember that some buyoff lenders may charge an arrangement fee or commission when you apply. This is a one-time fee that is typically a percentage of your outstanding balance. For example, let’s say you have a Ksh150,000 logbook loan and want a buyoff loan of the same amount and your new lender charges a 2% commission. This means the arrangment fee will be Ksh3,000.
Additionally, you might encounter other loan application fees like processing and transfer fees. Ensure to compare these costs too.
Finally, it's essential to crunch the numbers to ensure that these fees justify taking a buyoff loan, particularly if your goal is to lower your interest rates. After comparing loan offers, you can proceed to choose a lender.
You will initiate the process by contacting the new lender and expressing your intention to apply for a Logbook Loan Buyoff.
The lender will typically request a list of necessary documents so that you can start the application process and initial assessment. Some of these documents include identification cards, proof of income (such as payslips), KRA PIN, a copy of your vehicle's logbook, and your current loan statement. Some lenders can also ask for a letter from the current lender allowing you to seek a buyoff loan and outlining your total outstanding balance.
Next, you will be required to pay the necessary loan upfront fees such as application fees and vehicle appraisal fees. The new lender will also pull your credit report from a CRB to assess your creditworthiness.
If everything checks out, your lender will pre-approve your loan by giving you an offer. The offer letter will specify important details, including the approved loan amount, interest rate, loan tenure, monthly installment amount, and buyoff arrangement/commission fee. To proceed, you must thoroughly review and accept these terms.
Once you have reviewed the loan offer, negotiated with your new lender, and reached an agreement, the buyoff lender will give you an approval letter. This letter formalises the lender's commitment to providing the buyout loan per the agreed terms. You will sign this letter to show you have accepted the loan.
Next, you will approach your current logbook lender and communicate your intention to repay your outstanding loan balance using a buyoff loan you have been approved for. Your buyoff lender will also send a lender sends a letter of undertaking to your current lender to communicate their intention to buy out your loan.
Your lender will furnish you with your latest loan statement, outstanding balance, and any applicable costs, such as prepayment penalty and logbook transfer charges. They will also tell you how to make the payment which can be through a banker's cheque, cash deposit, or bank transfer.
Additionally, they will send a letter of acceptance to your buyoff lender containing the same information. Once they receive this letter, your buyoff lender will proceed to settle your existing loan balance with your current lender effectively becoming your main lender.
Once your original lender receives the settlement, they will initiate an NTSA discharge process that transfers the lien (your logbook) to your new lender. The discharge will cost Ksh3,000, and you will need to pay it if it wasn't included in the buyoff loan while you were settling the initial loan.
If you had borrowed more than the outstanding loan, the extra funds will be transferred to your bank account.
Next, your new lender will require that you install a new car tracker on the vehicle. This cost will also be on you. Depending on the lender, this can be a one-time fee ranging from Ksh4,000 to Ksh7,500 or a monthly fee ranging from Ksh1,700 to Ksh2,000.
With the Logbook Loan Buyoff successfully completed, you will begin servicing the new loan under the agreed-upon terms. This includes making regular monthly payments, adhering to the loan terms, and following the repayment schedule provided by the new lender.
While the process of a Logbook Loan Buyoff may appear complex, it can be more straightforward than applying for a new logbook loan. Once you are approved, disbursement can take one to three days, depending on your lenders. To streamline the process, it's crucial to prepare the necessary documents in advance and involve both lenders right from the start.
Additionally, maintaining good financial discipline throughout the process is essential. Continue making timely repayments on existing loans to maintain a positive repayment history. Finally, don't rush the process, as this may lead to unnecessary complications. Take the time to compare lenders and negotiate for terms that best suit your financial goals.