When seeking a loan, you'll encounter a wide range of options, including logbook loans, auto loans, personal loans, business loans, and many more.
However, here's a valuable tip: Making an informed decision by understanding their distinctions before you commit is a wise financial choice.
In this article, we will take a journey to analyse logbook loans in comparison to other available options. We will delve into how they work, examine interest rates, discuss eligibility criteria, and highlight potential risks.
By the time we're done, you'll have a clear picture of which loan type best suits your financial situation.
Logbook loans are a form of secured loans that use your vehicle as collateral. Simply put, your vehicle has a monetary value. It’s market value and the Forced Sale Value (FSV). FSV is the amount your car could fetch if sold under distressed conditions, such as at an auction.
When you apply for a logbook loan, the lender assesses your vehicle's FSV. Next, they determine the loan amount you're eligible for, usually 50% to 80% of the FSV.
For instance, if your vehicle has an FSV of Ksh800,000. If you apply for the Umba Logbook loan, which offers loans up to 50% of a vehicle’s FSV, you can secure a loan of up to Ksh400,000.
Although you retain possession of your vehicle during the loan term, you temporarily transfer the vehicle's logbook to the lender. This serves as security for the loan.
There’s no restriction on how to use your logbook loan. Here are some common uses of logbook loans.
Read Also: Why are So Many Kenyans Taking Logbook Loans?
The advantage of logbook loans is that they are accessible even if you have bad credit, they don't require a cosigner since your vehicle acts as collateral, and there’s no strict requirement on what you can use the loan for.
That said, not everyone qualifies for a logbook loan. Depending on the lender, here are some requirements you need to meet;
1. Year of manufacture cutoff: There may be a cutoff year for the vehicles a lender accepts. For instance, the car age limit for the Mogo logbook loan is 1998, while that of the Momentum Credit logbook loan is 2005.
2. Necessary documents: To complete the application process, you'll need to provide essential documents such as:
3. Preapproval fees: Keep in mind that there may be preapproval fees associated with logbook loans. These fees can include valuation charges:
4. Accepted vehicle models: Note that some lenders may have restrictions on the vehicle models they accept for logbook loans. For instance, Ngao Credit Auto logbook loan may not consider vehicles from manufacturers like Vauxhall, Jeep, and Chrysler, among others.
As you’ve seen, each lender may have unique eligibility criteria. So carefully compare, review, and understand these requirements before applying for a logbook loan. The good news is that you can use our logbook loan comparison tool to compare and select a lender that best suits you.
Let's take a closer look at some financing options, each with its own set of pros and cons:
Let's delve into a comparative analysis of logbook loans against various alternative financing options. We'll explore critical factors that can influence your choice:
Logbook loans often come with longer tenures, some extending up to 60 months, offering more manageable monthly payments. This makes them more flexible in terms of repayment, especially when compared to payday loans.
Payday loans on the other hand repayment is usually expected on your next payday, which can lead to financial strain if not managed carefully.
Logbook loans offer faster disbursement speeds, making them a suitable option for urgent financial needs. Some lenders have a turnaround time of 24 hours.
This is unlike business loans which may involve an extended approval process. The process involves gathering the necessary documentation, and the lender's due diligence can take time.
Similarly, mortgage approvals take lengthy processing times. It can extend to several weeks or even months. The approval process involves detailed property assessments and documentation.
Logbook loans stand out by granting access to substantial amounts, even if you have a less-than-perfect credit history.
Additionally, logbook loans typically don't require a cosigner or guarantor, unlike some Sacco, business, and personal loans that might have such stipulations.
Your car logbook is the security. Besides, there is usually no need for a downpayment like when applying for an auto loan.
In all secured loans, the biggest risk is losing the asset you used to get the loan. For logbook loans, you risk losing your vehicle if you default on the loan, as borrowers temporarily transfer their logbook as collateral.
This is also the case for auto loans. On the other hand, defaulting on personal loans could lead to higher interest rates and poor CRB ratings.
Logbook loans and personal loans are versatile and don't impose restrictions on how you use the borrowed funds. This flexibility makes them ideal for various situations.
On the contrary, business loans are tailored for specific purposes, such as expansion, equipment purchase, or working capital. They might not be suitable for personal financial needs or other non-business-related expenses.
Similarly, auto loans are exclusively for purchasing vehicles. You cannot use them for other purposes. This limits their versatility compared to logbook loans.
Read Also: Kenya’s Fastest Logbook Loans
Logbook loans come with their share of risks and responsibilities. These include:
To mitigate the risks associated with logbook loans:
Read Also: How to Protect Yourself When Taking a Loan.
Now that you have a clearer picture of logbook loans and alternative financing options, it's time to make an informed decision tailored to your financial needs and circumstances.
To do this, you’ll have to compare the different lenders. When comparing loans, take a close look at these aspects:
To simplify your comparison process, you can take advantage of our logbook loan finder tool. This tool allows you to input your loan requirements and preferences, and it will generate a list of suitable lenders for your consideration.
Read in Detail: Things to Look Out for When Comparing Logbook Loans