Life has the strange power of dropping unexpected financial crises, be it a sudden medical crisis, business requirements, or a personal venture you want to pursue right away.
If you own a vehicle, one simple method of generating money is by mortgaging your car to get a loan.
This type of borrowing is also called a logbook loan. It allows you to borrow even if you still retain the use of your car. Therefore, it is a very attractive option for most people with poor credit records or limited collateral.
But while it sounds like a simple solution, it is good to be aware of the process of logbook loans and what you stand to lose.
This manual will walk you through how to obtain your logbook loan faster.
1. Evaluate the Value of Your Car
In order to obtain logbook loans, the first thing you need to know is the worth of your vehicle.
The lender will normally quote an amount to lend as a percentage of your car’s current market value.
To arrive at an estimate of the value of your car, you can use computer-based tools that provide free estimates based on year, make, model, mileage, and general condition.
If you possess a car with special features or one that has been customized, a professional appraisal from a certified mechanic or professional dealer will give you a better estimate.
Remember, the better condition your car is in, the higher the value and the more you’re likely to borrow.
2. Choose a Reputable Lender
Not all lenders offer the same level of professionalism or consumer protection. Therefore, choosing the right lender is a critical part of the process.
Always choose a lender that is open about its terms and conditions and regulated by a well-established authority.
Steer clear of those lenders that are not transparent with their fees or repayment periods. Instead, use established institutions or online platforms.
Read reviews of previous borrowers to understand the lender’s work pattern. Search for responsiveness, customer service, and adaptability.
3. Be aware of the Loan Terms
Some logbook loans may charge high interest, and borrowers often get trapped in this arrangement.
So, make sure to read through the repayment plan to understand how much you’ll pay each month, how long it’ll take to pay off, and what will happen if you miss a payment or are late.
Some lenders will repossess the vehicle or levy extortionate charges if there are continuing defaults.
Also, be aware of other expenses like arrangement fees, payment charges for delay, or prepayment penalties.
Make sure that all of this is in black and white, and don’t hesitate to question any part of the agreement that isn’t set out clearly.
4. Collect the Necessary Documents
To be able to obtain a logbook loan, you will need to supply some necessary documents. These will typically be:
- Your vehicle logbook (V5C) – this confirms that you are the owner of the vehicle.
- Evidence of income – i.e., recent payslips or bank statements to show that you have the means to repay the loan.
- Current ID – e.g., passport or driving license.
- Evidence of address – e.g., utility bill or tenancy agreement.
- MOT certificate and insurance details – to verify that the car is in roadworthy condition and insured.
Having these papers in hand in advance may help speed up the approval process. Some lenders will also physically examine the car for condition.
5. Lend and Get Your Loan
You can now apply with your papers in hand and a lender selected. Most lenders offer the convenience of an online application, where you can key in your details and receive your response in hours or minutes.
Once approved, you will be required to sign a bill of sale, a legal document that legally transfers ownership of your car to the lender for the length of time it takes to pay back the loan. You are not prohibited from driving your car in your normal manner for all this.
Cash is often wired to your checking account as soon as possible, depending on the lender’s processing cycle.
6. Manage Your Payments with Care
Taking the loan is only the first step. It’s your job to make the repayments on time.
Not doing so will result in severe repercussions, such as your car being repossessed. One of the simplest ways to avoid defaulting is to set up a direct debit from your account so payments are made automatically and never forgotten.
If your situation does alter and you’re struggling to repay, it’s also important to speak with your lender as soon as possible.
The majority will redefine how you make the payments or provide short-term, temporary relief options to prevent you from defaulting.
Final Thoughts
Borrowing against your car can be a wise short-term financial move, but only if prudent.
It offers the convenience of cash today without selling your car, so it is a readily available option for those with short-term financial needs or whose credit score isn’t excellent.
The interest rates and the possibility of losing your car are reasons to be careful when choosing your lender. Therefore, you need to read all conditions closely and pay promptly.
