Logbook Loans Should Be Used With Care

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.Porsche

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.

Checking affordability

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.

Are Logbook Lenders Really Offering The Cheapest Rates?

Cheaper loansMost loan companies operate in a very competitive marketplace.  There are generally a large amount of lenders competing for the same business and they will try almost anything to secure the sale.

Luckily for consumers, the market is regulated, which means that lenders have to draw the line somewhere when it comes to making claims.

In the past some lenders have stated that they are the cheapest on the market, when they are actually not and they have used inflated numbers when it comes to APR rates.  It looks like some lenders will still try to get away with this, even with the current level of regulation that there is.

Consumers don’t research as much

Research shows that consumers who are looking for logbook loans don’t research in the same way as people looking for other forms of a loan.  This is generally because the process of buying a V5 loan can be a bit frantic and they need the money fast, when they have been possibly refused credit elsewhere.

If the consumer sees on a lender’s website that they are dealing with the cheapest provider they are not very likely to validate that with other lenders and check if it is actually true.

This is worrying because customers struggling with debt should not be taking out loans that will put them further into financial difficulty.  In fact it should be just the opposite.

The regulators know about this, which is why they are taking steps to rid the market of misleading claims.  The days when logbook loan companies could get away with all kinds of practices and claims should be a thing of the past, and over the coming months and years will disappear completely.

It seems that the logbook loan market attracted the kinds of companies that would not have any moral issues when it came to misleading consumers.  As they are weeded out, the consumer should be able to apply for a loan knowing that they are not going to be mislead and that they are told everything they need to about the loan upfront.

No background checks

The popularity of loans secured against cars has soared because of the ease of obtaining the loans compared with other types of finance.  No  credit checks are needed and the money can be transferred into a customers account within hours of making an application.

The  Citizens Advice Bureau has launched it’s own campaign in regards to the loans, claiming that people have had cars repossessed when they hadn’t even taken out a loan and that lenders have behaved badly when it comes to dealing with customers.

This hasn’t stopped the rate at which people take out loans from rising.  Year on year the numbers choosing a V5 loan increases which means that there is increased awareness about the type of finance, but also that people are in general in greater need of loans.  The ease of applying for a loan is also a factor, it is incredibly easy to go online, make an application and receive the money on the same day.

In the past and with other loan types, it would have taken much longer for the application to go through and for the borrower to receive the money.

If there is a demand in the market for the loans then lenders are going to provide a service because they can make a profit from it.  The laws around Bills of Sale means that legally lenders can take ownership of a vehicle and lend against it.  It won’t be until the law is changed around this that lenders will have to find another way to use vehicles as security for a loan.

Regulation is helping give lenders the push to clean up their act and at the same time is providing more protection for consumers.  When a lender now says that they have the cheapest rates this should have been cleared by the Financial Conduct Authority so they can actually state that on their marketing material.

Ignoring Debt is Never a Good Solution

When someone goes into debt they can sometimes think that the best solution is to ignore the debt and carry on, hoping that it will go away.  Of course it wont go anywhere, and if anything will get worse over time.

Interest charges and missed payments will add up until the amount becomes almost unmanageable in many cases.Too much debt

Keeping in contact

One of the best solutions for dealing with this problem is for the person in debt to contact the company they have the loan from.  If it is explained that they aren’t able to pay the loan back, they may be able to get a deal that gives them reduced payments or that allows them to cut the debt back.

The loan company won’t want the customer not to be able to pay their loan at all.  They would rather gain some money back than nothing at all, so in most cases they will work with the customer to recover as much of the debt back as they can.

Security for a loan

If there is an asset that was used as security for the loan such as a house or car this asset will be at risk if the customer just ignores the loan companies demands.  If the customer actually speaks to the company they may be able to come to an arrangement that reduces their payments, or one that gives them a break from paying until they get back on their feet financially.  This is a much better alternative to their house or car being repossessed, which does happen on a frequent basis, often because those in debt don’t communicate properly with loan companies.

Companies use assets as security for a reason, to protect themselves if a customer defaults on a loan.  This is even more the case when it comes to short term loans where the lender does not check credit scores but needs some kind of backup if the customer defaults, this will invariably be an asset that has value.

Credit scores

By ignoring debt, a persons credit score can be adversely affected quite seriously because the record will show a series of missed payments which will make it extremely hard for the customer to be loaned money in the future.  It will be almost impossible to borrow money when a lender sees the potential borrowers past history when it comes to paying back loans.  This is often why companies that do not conduct credit checks on people are popular, because borrowers do not have to show their credit history to lenders when it is bad and they haven’t been accepted for a loan elsewhere.

Ignoring any kind of financial situation is not usually a good idea because it will always catch up with you in the end.  Loan companies will always chase debt that they are owed and the people they have doing this are experts and have seen it all when it comes to collecting outstanding loan amounts.

For people that do find themselves in debt with no way out, there are charities that can provide advice and support if needed, see our article on it here.  People in debt are not alone, and if speaking to the loan company in the first place doesn’t help, then these charities should be able to provide useful advice, and help them get back into a good financial situation.

Think before choosing a loan

As is always the main message of this site, taking out a loan is a big decision, and one which should be thought carefully about because the consequences of failing to pay it back can affect the borrower quite significantly.  It is always best to use a company that is well known, is fully regulated and has good reviews online.  It is also important that the interest rates charged are reasonable, why is why it is useful to check the competition, just in case there are other deals out there.

Struggling with Debt? Some Sensible Solutions

Finding yourself deep in debt can be an extremely stressful time.  it can feel like there is no way out and that the situation isn’t going to get better any time soon. There is often no-one to turn to and in some cases when you do turn to someone for help, they just end up taking more money from you.Stressed about debt

Fortunately there are charities and government run organisations that can offer help and advice to people who are struggling to pull themselves out of debt.  The Money Advice Service is very useful, as is Step Change, a debt charity that offers help and advice.  Some of the best advice is to go through all the expenses that you have each month and try to find any that aren’t essential and reduce them if you can.  Saving any money each month means that you are able to put more cash into paying off your debt.  This is better than nothing and at least will give you some extra money each month, even if you don’t start to pay off your debt.

Communicate

Speak to the companies that you owe money to and ask them if they can reduce your payments.  In many cases they might be able to offer you a deal to settle your loan or allow you to make reduced payments for a while.  It is always best to speak to the companies as you might be surprised at what they can do.  They often want to help you pay the loan back because they do not want to lose money that is owed to them.

Use friends and family if possible

If you are thinking of taking out more debt to pay off existing loans, this is generally not a good idea.  Try another route such as asking family or friends if they can lend you money.  They are less likely to have high interest rates on their loans.  Of course you need to make sure that you pay your family or friends back promptly too.

When you are using people for advice, make sure that they are not charging you for their services.  As explained above, there are many other charities that offer free impartial advice and are not trying to make profit from you and others who are already in debt.

Organisation

By organising your money better you will set yourself on the road to being better off financially.  Having a clear plan and knowing what you are going to do with your money and how you are going to do it will make getting out of debt easier.  If you are going from one day to the next without knowing where you are with your money, you are likely to find it difficult to get out of your financial problems.

How to Make the Most of a Loan

One of the issues when it comes to large amounts of debt is the fact that borrowers often don’t use loans for sensible reasons.  They take out a short term loan for a holiday or to pay for a birthday.

Of course it is nice to have money for these events but they can easily be delayed until money is found, and they aren’t essential.  Borrowers need to prioritise their finances and manage them more effectively before thinking about loan finance.

A loan with a high interest rate should be a very last resort, especially if the money isn’t going to be there to pay it back quickly.  Problems occur because high interest rates mean that the debt just gets bigger, so a loan taken out to pay for a holiday means that the holiday will eventually end up costing much more than it originally should have.Loan cash

Unfortunately it is those on low incomes who suffer the most, as they are the ones most likely to take out a loan which could then be defaulted on.  As they default on their loan they incur extra charges and the interest keeps adding up.  This pushes these people who are already on low incomes further into debt and in some cases they find themselves taking out another loan to pay off the original one, which only makes the situation worse.

Getting the most from borrowed money

The best way to use borrowed money is to know that it is going to be possible to pay the loan back quickly.  This way there won’t be much interest accrued on the finance which means it is a cheap way of borrowing money.

It is best to plan ahead before taking out a loan and know that there will be money coming in to pay the loan back fast.  This needs to be a certainty otherwise the borrower will end up paying the loan back in instalments with interest charges being added.

Loans are often useful when they are used to pay for assets that have value when they are re-sold.  If the borrower has any financial difficulties the asset can be sold and some or all of the loan can be paid back.

Managing Debt – Why the UK is so bad at it

The availability of short term loans in the UK has contributed quite significantly to the debt of the country.  As the ease of obtaining debt has increased, the level of education regarding loans and finance has not.

Making debt calculations

If someone is desperate for money to pay a utility bill and it is very easy for them to take out a loan online, there is a large temptation to do this.  If that person is better educated about debt they may think twice about the loan or they may not.  The fact is that they are making a more informed choice than they were before.

Government help

The government is doing more than it has in the past to help people in debt and to start to inform them about their options so they are not left on their own.  This is crucial if people are going to be able to improve their situations.

The problems with short term loans are that interest rates mean that people end up paying back far more money than they originally borrowed, making their debt balance very hard to pay off, especially if they have had to delay payments, which often add extra charges.

Educate people better

The FCA is regulating this and has proposed a cap on the charges so this should help, but it doesn’t get to the root of the cause, which is lack of education.  People need to be educated in schools about the risks of going into debt and how to manage their finances so they don’t end up in debt.

FCA Cap on Payday Loans

In the news today is the story that the Financial Conduct Authority have proposed that there should be a cap on Payday loans from January 2015.Stop for payday lenders

The FCA say that under their proposed scheme a borrower would never pay more back than than 100% of the original cost of the loan.  They say that this makes it clear for customers to understand the charges that they will face when they borrow money.

Late payment cap

Fees for making loan payments late would be capped at £15, rather than whatever a loan company wants to charge.  Again this is to make it clear for consumers, so they can budget more effectively.

The proposals look stricter than many thought, but some still think the FCA needs to go further.  Gilian Guy who is the Chief Executive of Citizens Advice has said that people will still find themselves deep in debt with these measures.  It might mean that the debts don’t spiral out of control as they once maybe would have done, but they are still significant.  She makes the point that borrowers need a cheaper alternative, possibly from banks in the form of an affordable micro loan.

Because borrowers often feel that there is no real alternative to a payday loan, the worry that the FCA has had is that people will turn to illegal lenders who obviously aren’t regulated in any way.  Perhaps they have shied away from stricter criteria because of this.

If borrowers are desperate enough they will always find ways to secure cash.  Alternatives such as logbook loans which don’t receive much publicity compared to payday loans could be another choice for borrowers who own their own vehicles.  The FCA is looking into this kind of finance too so it remains to be seen if they will impose any kind of restrictions on those lenders too.

 

Why is regulation so important?

The short term loan market needed regulation a long time before the Financial Conduct Authority (FCA) stepped in.  For example there is currently a campaign running against logbook loans to raise awareness of the dangers of that type of finance and highlighting why the law should be changed to make it more difficult for people to be able to sell a car on with a loan attached to it.  With no authority overseeing the market it was quite easy for lenders to charge hidden fees, not be upfront about what their fees actually were, and to use aggressive tactics when it came to collecting debts.Regulating loans

The same became true for other types of short term lending, which became incredibly easy to obtain with the rise of the internet and the ease of applying online.  Even with regulation it will still be very easy to apply for a loan with a high interest rate and receive the money on the same day.

Authorisation

One of the main benefits of regulation is that the FCA has to authorise all companies that offer short term loans to consumers.  If the companies don’t meet the FCA’s requirements they will suffer serious sanctions, which could include being forced to cease trading.  Having this threat over them will force many of these businesses to change the way they do business in order to comply.

Regulation means that consumers will be safer when applying for and using loans.  Consumers may not necessarily realise that anything has changed when they first apply for a loan, but there will be a difference in the way that the loan is handled by the company.

Loan regulation has been due

It is hard to believe that the industry carried on for so long without outside regulation.  It wasn’t until things became so bad that there had to be a change by the government to make sure that more consumers didn’t suffer at the hands of certain businesses.