A logbook loan is a loan taken out using your car as collateral. It means that you can borrow money even if you do not have a perfect credit record and so it can be tempting to do. However, like all loans, there are risks associated with a logbook loan and it is wise to be aware of them before applying.
A logbook loan is a loan where you use your car as collateral. This means that you can borrow money depending on the value of your car. So the company will value your car, take off the cost of any finance you already owe on it and can offer to lend you the difference. However, they will take possession of the ownership documents of your car until the loan is paid off. This means that if you miss a repayment, they can sell the car and they will then take the money which is theirs and give you the rest.
Therefore the most obvious risk of the logbook loan is losing your car. In some cases this will be more of a problem than others. If you need your car to get to work, for example and there is no other way of getting there, losing your car could mean losing your job. This is a huge risk. However, if you only use your car for pleasure, have another car in the family and could manage without it, then perhaps it is not such a big risk to you.
It is important to also think about other risks as well. If you take out any loan you will have repayments to make. These will be expected to be made on a monthly basis as you might expect. However, you need to consider whether you will have enough money to be able to afford to make these repayments. It is well worth getting some paper and working out what you earn and spend each month on average. Think about larger costs which may not be regular like birthdays, insurance renewals, home repairs, car services etc and when you are likely to have to pay for those as well. Then consider how much extra you will need to find each month to cover the repayments on the loan and whether you will be able to cope.
You need to also consider what might happen if you want to borrow even more money. Having a loan will not only change your credit record but it will also affect your means of covering repayments on a loan. If you want a mortgage or any others ort of loan, you may find that you will be turned down as a result of having a logbook loan. This could mean that you will have to do without things and may even be worse off financially compared to how you might do if you do not have a loan.
Having any sort of loan can be stressful. If you are struggling to make the repayments or to manage on the money that you have left after the repayments it is not much fun. Some people also feel stressed about having a debt hanging over their head and if you have a debt for a long time, this stress can really add up and can even lead to illness.
So although all loans have risks, there are additional ones associated with a logbook loan. As your car is a collateral on the loan, you may lose the car if you cannot make the repayments. If you need your car for work then you could even end up losing your job if you cannot get there and so the risk can be very high. So you need to think hard about whether you can afford to risk your car like that. Consider all of the things that you use it for and how you would manage if you did not have it. You need to weigh up this with the advantages of having the money from the loan. What will you be spending it on and how important is it to you. Weigh up both sides and think about whether you still think that it will be worth it.