In this economy, it’s hard to get credit without onerous strings attached. It’s even harder to get a loan or credit facility of any size if you have blemishes on your credit report. If you’re sick of paying through the nose for past mistakes or misunderstandings, you may want to consider a new type of loan that’s gaining traction in this low-interest environment: the logbook loan. While it’s no silver bullet, a logbook loan may provide you with some much-needed breathing room.
What Is a Logbook Loan?
The best way to think of a logbook loan is as an equity loan for your car. Just like a home equity loan, a logbook loan extends you a lump sum of cash equivalent to the value of your car in exchange for the car’s logbook. In other words, your lender retains ownership of the vehicle while you’re repaying the loan, using as collateral in the event of default. Once you’ve successfully repaid the loan, your lender returns the car and everybody wins.
Things to Remember
Logbook loans aren’t for everybody. You’re likely to need one, or to be forced to take one out of a lack of other options, only if your credit score is below average. If you’re regularly denied on loan applications due to poor credit, you’ll be relieved to hear that logbook lenders don’t even perform a credit check before approving your loan. What does matter to these lenders is that the value of your car exceeds the loan’s principal amount and that it’s attractive to third-party buyers in the event that they must sell it to cover any loss on your loan.
At the risk of sounding obvious, remember that logbook loans are not free. You’ll lose more than just your car if you fail to repay your loan in full: Your credit score will take a significant hit and you may find yourself deeper in debt. Ignore any hard-sell attempts from your logbook lender and take the loan only if you have the income to cover its monthly payments.
Terms and Conditions
As a borrower, logbook loans afford you a shorter leash than other forms of credit. When used correctly, however, they may offer some key advantages as well.
Repayment terms Some logbook contracts have a zero-tolerance policy for late payments. In other words, you may forfeit the rights to your vehicle if you miss just one payment. Try to avoid these types of contracts.
Negotiability Logbook loans aren’t likes some take-it-or-leave-it loan products offered by traditional banks. Most logbook lenders are smaller and more flexible when it comes to interest rates and loan terms. These guys need your business, so use offers from other lenders as leverage to negotiate a more favorable loan package.
Flexibility Logbook lenders are a live-and-let-live bunch. As long as you make timely repayments, they don’t much care what you do with your loan. You’ll probably find this to be a welcome change from the stringent conditions of most traditional auto and home lenders.
If you have below-average credit or need a quick loan with no strings attached, logbook loans may be right up your alley. Pay attention to the fine print, don’t be afraid to negotiate for a better deal, and be sure to repay your loan promptly to avoid losing your car and further damaging your credit.
Felicia Whitlow is a finance blogger living in Seattle. She recommends logbookloans.net for cheap logbook loans for car owners. Find out more about using your logbook as loan collateral.