It’s a common situation for a loan customer to be in, it comes to a certain time of the year such as Christmas or the school holidays and they need money fast. They need to buy Christmas presents or need money to take the children to a theme park.
Rather than having saved the money throughout the year which may or may not have been possible (depending on their financial situation), they decide to take out a logbook loan.
One of the issues with this is that when they take out the loan, they are generally in a hurry to secure the money and they rarely shop around and compare different logbook loans to see who has the best deals.
This, together with their desperation to receive the money as quickly as possible, can be a recipe for a disaster. All the borrowers thought processes are in the short term. They decide they need the money, they apply for a logbook loan and then think about the consequences later.
Many people take the route of the V5 loan because lenders don’t always credit check applicants. This is useful for borrowers with poor credit ratings because they will have probably been turned down for credit elsewhere.
Needing money fast
The problem that now arises is that they are in desperation mode. They realise that a loan against their car is probably their last resort to raise money, so when they find a provider they choose them because they are the first one that will offer them the money. This and the probability that they need the money quickly is very often leading them into debt in the future.
Educating people about loans
Greater emphasis needs to be placed on helping borrowers understand that being able to borrow cash quickly, however useful, can place them in financial difficulty in the future. Interest rates are high on these types of loan and if the borrower doesn’t plan properly they will be paying the loan back for months if not years to come.
The lure of being able to quickly take out cash can be too much for people who need to raise cash fast, even if they may be struggling to pay it back in the future.
Logbook lenders should carry out strict financial checks on borrowers to assess their ability to pay a loan back. However people’s circumstances change and if they are just on the edge of being able to make loan repayments, they could find themselves with a difficult financial problem.
Short term loans with high interest rates are useful for those who need to raise cash quickly for important purchases and know they can pay the money back quickly. If they are going to pay the whole balance back in days. weeks or a couple of months, they are probably getting a very good deal. It is the type of small loan that carries on over months and possibly years that seems to put people in debt that keeps on going.
There is always talk of the logbook loan market being regulated and firms being stopped from lending in certain circumstances. It would be a shame if firms weren’t able to lend because people aren’t able to use their loans responsibly.