A logbook loan is a type of loan that uses your motor vehicle as security - a car, van, tractor, or motorbike. It allows you to borrow an agreed amount from the lender against the value of your vehicle. In return, the vehicle ownership is temporarily transferred into joint ownership with the lender until you fully repay the loan plus interest.

To secure the loan, you provide the lender with the vehicle ownership documents - the logbook. During the loan period, you can continue using the vehicle normally.

However, a logbook loan should not be confused with a vehicle loan (asset financing). A vehicle loan is a loan that allows you to finance the purchase of a vehicle (if you can’t afford it or are not willing to purchase it in cash). In contrast, a logbook loan allows you to take a loan using an existing vehicle as collateral.

Logbook loans are offered by a wide range of microfinance institutions (MFIs) and are also beginning to be offered by some commercial banks. Many of these MFIs have branches all across Kenya.

There are many reasons why logbook loans are persistently gaining popularity currently. These include:

• Accessibility. In Kenya, logbook loan lenders are currently sprouting up everywhere. So if you urgently need cash and have a vehicle, you just need to find a lender, check your eligibility, and your loan will be with you as quickly as possible - Some lenders process the loan within 24 hours.
  

• Simple approval process. Your loan will be approved and processed swiftly with the correct requirements and documents. Most logbook loans in Kenya offer a 24-hour turnaround from application to approval.
  

• Flexible loan amount. The loan is based on the value of your vehicle, and you can therefore borrow as much as you need up to the value of the vehicle - depending on the lender. In general, the minimum loan size is as low as Ksh50,000  and the maximum for some providers goes to Ksh25M- depending on your car value. Usually, you can borrow somewhere between 50-80% of your car value.
  

• No credit check. For most loan types such as unsecured personal loans, a lender will typically use your credit history to determine your creditworthiness. However, for a logbook loan, the proof of ownership of the vehicle and the fact that it passes a valuation assessment that satisfies the conditions of the lender is enough to get you approved for the loan. Note that some lenders will, nevertheless, check your credit history.

• Use as you want. Unlike other loan types such as business loans, logbook loans do not have limitations on what the funds can be used for. You can use it to cover whatever costs you need to, provided you have a plan to repay it in full.

There are many things to consider before taking a Logbook Loan. These include:

• Think about what you need the money for. Logbook loans are helpful for taking advantage of quick opportunities such as buying land, etc., dealing with an emergency, or growing your business but before you decide to take a logbook loan, you should first think about why you need the money and what for.
  

• Be aware of high upfront fees from some institutions. Some logbook loan providers may charge an applicant upfront fees that have to be paid before the loan is disbursed. Since these fees can significantly raise the total cost of the loan, it is important to do the math, compare options and only make a decision when you are confident of the facts. Other logbook loan providers charge no upfront fees, and instead have an application fee that is bundled into the loan amount. Call a Money254 agent and your agent can help you better understand the differences between the fee structures and what they mean to you.
  

• The value of your vehicle.  The qualifying loan amount is pegged on a percentage of the vehicle’s forced sale value (FSV). FSV is the amount the car would sell at if needed to be sold. So 50% of FSV means if your car's FSV is Ksh600,000 you can only get up to Ksh300,000.  
  

• How frequently you need to make payments on the loan (the repayment period). In most cases, the repayment period is determined by the lender. Most logbook loans on Money254 have a monthly payment period over the duration of the loan, but some lenders might ask you for a weekly payment.
  

• Be aware of penalty fees. There are penalties for missed payments. Also, you might get a penalty for clearing the loan too quickly without a prior discussion with the lender. Use Money254's comparison tool to compare the penalty fee structures between different lenders.

In addition to the quoted interest rate to the loan, other common fees to have in mind include:

• Processing Fee: 2.5% and above depending on the lender
• Valuation: Charged upfront before the loan is approved. Note if the loan is not approved, the valuation fee is not refundable
• Logbook Search + Discharge: fees associated with the National Transport Authority (NTSA) search and transfer
• Car Tracker: this must always be fitted at the borrower’s expense
• Comprehensive insurance cover: if your car only has the basic third-party insurance policy, you will need to take a comprehensive cover at your own cost before you can qualify for a logbook loan.
  

These are the common fees across all lenders, however, some firms have additional fees, such as legal fees. Use the Money254 logbook loan comparison tool to compare the full fee structures between different logbook loans in the market.

Although a logbook loan might come in handy when you need it, they carry a few risks and may not be your first option when you are looking to borrow urgently. The risks include:

They can be expensive

Logbook loans may charge a higher interest rate than other personal loan types, potentially making them some of the most expensive loans in the market today.

As such, you might need to dig a lot deeper in your pocket to repay the loan.

That said, a logbook loan may be the only option for someone to get at least more than Ksh50,000 in under 24 hours if they do not have a relationship with a lender for a period of at least 6 months.

One of the quickest loan options is a digital loan. But the amounts start from as low as Ksh500 and take you a while to raise your limit.

So, if you do not have a bank account with an appropriate balance for about six months, are not a Sacco member, do not have a big loan limit with a digital lender, etc, a logbook loan may be the fastest way to get a large amount of money.

Loss of vehicle

Like any other secured loan, the lender has the right to repossess the collateral in the event that you default on your repayments. This is because the minute you sign the loan agreement, you temporarily jointly own the vehicle with the lender.

This means that the lender has the bill of sale to your car and the right to repossess the vehicle if you fail to repay the loan - If you miss payments for a predetermined number of successive months.

If you feel like you are struggling to repay, you can always reach out to your lender and work with them on a repayment plan to avoid losing your car.

Additional charges

The lender has the right to charge you a penalty if you miss a payment. This is to cover for the inconveniences of the repayments missed.

To find out the rates for the penalty, ensure to carefully read the fine prints on the loan agreement before you sign.

1. ‍Logbook - A document that tracks vehicle ownership (registration and taxation history of a specific vehicle).
2. ‍Repossess - Where the lender takes your vehicle away or auctions it after the borrower fails to honour the repayment terms of the loan.

Logbook loans are available to anyone who owns a private, commercial, or passenger service car depending on the specifications of the individual lender.

You will be needed to provide your logbook and other registration documents to show ownership of the vehicle as part of the loan application and approval procedure. The lender will then do a valuation of your vehicle to determine the amount you are eligible to borrow. The lender will also ensure that the vehicle is clear of any other financial obligations i.e. whether it has been used as collateral for another active loan.

As part of the procedure, some personal information will be required, such as your income. Other logbook lenders insist on a physical address as well as your CRB standing, pay slips and bank statements.

Each logbook lender has its own set of qualification requirements for who can acquire a logbook loan. However, in general, you may be eligible for a logbook loan provided you meet the following criteria:

• You should be over 18 years of age
• You should be the owner of the vehicle.
• You should have your name on the logbook
• There should be no outstanding finance on the car
• The car should have a comprehensive car insurance
• The car should be roadworthy and in reasonable condition.

The exact amounts may vary between lenders. The amount a lender is willing to lend to you is determined by the Forced Sale Value of your car - that is the sale price the car can reasonably go for if it was put on sale for a period too short to allow for proper marketing.

Among logbook loan lenders in Kenya, you can qualify for as low as Ksh50,000 to a maximum of Ksh25 million.

However, in general, the more valuable your car, the more money you can borrow. In most cases, you can get from 50% of the value of your vehicle, with some lenders giving up to 80% of the value of your car.

Also, note that newer cars get a higher percentage compared to older cars.

Once the qualification and application processes are completed, the amount you wish to borrow is deposited into your account and just like the amount, the disbursement duration also varies across different lenders.

Some lenders promise to disburse the money as quickly as 6 hours, some 24 hours and others go up to a couple of days depending on their terms and conditions. You can use the Money254 logbook loan comparison tool to compare the disbursement time for different lenders.

The interest rates for logbook loans vary by institution and range from 1.6% to 10% per month. You can use the Money254 logbook loan comparison tool to compare the interest rate and full fee breakdowns between different logbook loans offered in Kenya today.

Other common costs associated with logbook loans include: processing fees, Valuation, NTSA logbook discharge, car tracker and comprehensive insurance cover if you do not have one.

Other costs not common across all lenders are legal fees, CRB charges, application fees and bank disbursement fees.

Yes, you can use your car normally. You are completely responsible for the vehicle's insurance and maintenance. The only difference is that the loan is secured against the vehicle, and you will not be allowed to sell it until the debt is paid off.

If you are experiencing financial difficulties and are unable to make your monthly payments on time, you can reach out to your loan provider and work out an extension plan.

If you default and you fail to make any kind of commitment or late repayment plan with your logbook loan provider, you will receive a demand letter and be given some more time (14 days in most cases) to make your repayments, but if you completely fail to react, the logbook loan provider will start the process of repossessing your car.