How to Protect Yourself When Taking a Logbook Loan

Over the last few years, logbook loans have increasingly grown in popularity as an emergency and secured loan option in Kenya. Its accessibility and flexibility have made car owners flock to them when cash-strapped. But logbook loans come with many dangers, including the risk of losing your car. So, how can you protect yourself when taking one?

Logbook loans are short-term loans that use your vehicle as collateral. It allows you to borrow a predetermined amount from a lender against the value of your vehicle. Until you repay the loan, the car is put on temporary joint ownership with the financer. If you default, a lender can repossess your vehicle and sell it to recover the loan.

When taking a logbook loan, you must consider these dangers and take steps to lower your risks. This article will explore seven steps to protect yourself when taking a logbook loan.

Read Also: 5 Reasons Why Taking Loans Won't Stop your Financial Troubles 

Have Your Lawyer Go Through the Loan Contract Before You Sign

Any formal loan, including logbook loans, involves signing a legal agreement with a lender. The agreement usually contains the terms and conditions of the loan, and it is filled with a lot of legal jargon a layman might find complex. 

The lender also drafted the agreement, meaning it is often one-sided. For that reason, you need someone who can help protect your interests.  

To ensure you get the best deal, have a professional look over your logbook loan agreement before signing. They will help you understand the lender's demands, negotiate on your behalf, explain the repossession laws, inform you of your rights, and, most importantly, advise on whether the loan is worth it.

Having a lawyer review your loan contract will help you identify any red flags, save you money, and give you peace of mind. However, you should know that hiring one will add to the cost of your loan.

Read Also: 6 Reasons Why Kenyans Prefer Logbook Loans During Emergencies 

Compare As Many Options as Possible

Many lenders offer logbook loans in Kenya, and all have distinct features. To ensure you get the best deal, compare different lenders and pick one that aligns with your needs.

Shopping around for a logbook loan is important to ensure you get the most competitive rate and terms possible. It’s an effort that can save you substantial money up front and over the cause of the repayment. For instance, even an interest rate savings of as little as 1% can save you thousands of shillings.

The best way to compare different lenders is to request loan estimates from multiple lenders, compare offers, and fine-tune your options. Next, read the terms and conditions of the lenders and pick one that is friendlier and offers what you are looking for. 

To kickstart your search, use Money254 Logbook Loan Portal to compare different lenders for free.

Research the Reputation of Your Lender

With many lenders offering logbook loans, how can you tell which one will be the right fit for you? The decision of who to go with for a logbook loan is essential, and it's best to do your research before committing by looking at a lender's track record and reputation. 

A lender’s reputation will indicate how reliable and trustworthy they are and the quality of their customer service. 

So how do you research the reputation of your lender?

• Check online reviews on Google - Read what their previous customers say about them. 
• Ask friends and family for recommendations - Do you know anyone in your network with experience taking logbook loans? Ask them to recommend a reputable lender they have previously used.
• Check out for red flags during the application - Look out for anything fishy that might make you question the lender's reputation during the application. For instance, are they asking you to sign documents you don’t understand or dodging your questions?

Read Also: Things to Look Out for When Comparing Logbook Loans 

Beware of Other Logbook Loan Fees Apart from the Interest Rate

When considering taking out a logbook loan, knowing the other fees associated with the loan apart from the interest is important. These fees can significantly increase the overall cost of borrowing and may impact your ability to repay the loan or lead to money wastage.

Some common fees associated with logbook loans include application fees, appraisal fees, service fees, early exit fees, early repayment fees, insurance fees, and penalties for late payments. These fees can vary from lender to lender and can add up quickly, increasing the total amount you must repay.

Knowing these fees can help you decide whether the loan is the right option. You can compare the total cost of the loan, including all charges, with other types of loans or alternative financing options to determine the best fit for your financial situation.

Read Also: 6 Deadly Sins When Taking a Logbook Loan

Have a Solid Loan Repayment Plan

To protect yourself and your car when taking a logbook loan, ensure you can repay the debt fully and on time. To gauge your ability to repay the loan and create a plan, you need to ask yourself these three questions:

• How do you intend to use the money? - This will help you understand if the loan is worth taking in the first place. Unless it is a serious emergency, you should use loan money in a manner that benefits you.

• How do you plan to repay it? - Do you intend to use your salary or are you waiting for a windfall? Do you plan to invest the loan money so that it can repay itself? Whatever your plan, ensure it is solid.

• What is the repayment term? - Which payment term works best for you: weekly, fortnightly, or monthly? Also, are you planning to pay off the loan before its term? Considering these essential factors can assist you in selecting the right loan and avoiding unnecessary costs.

Read Also: 11 Life Choices You’ll be Proud of in 10 Years

Prepare for The Worst Case Scenarios 

Preparing for the worst-case scenarios when taking a loan is crucial to avoid potential financial problems in the future. Emergencies such as losing a job can significantly impact your ability to repay the loan, leading to missed payments and potential default. 

To protect yourself, you need to have a backup plan. This can be an emergency fund or alternative income source that can help you continue to make payments and avoid default.

If you default on a loan, the lender can take legal action to recover their money, damaging your creditworthiness and making it harder for you to obtain credit in the future. Additionally, your vehicle may be repossessed if you default, causing further financial and practical problems. You should be ready for such scenarios.

It is important to carefully consider the terms of a logbook loan agreement and ensure that you can afford to make the required payments. Finally, communicating proactively with the lender if you struggle to make payments can help you avoid default and protect your financial future.

Read Also: How to Get The Most Out of Your Loan

Consider other Types of Loans

Logbook loans can be expensive and involve significant risk, as they are secured against your vehicle. Therefore, it is important to consider other types of loans before taking out a logbook loan. Several alternative financing options are available, such as short-term bank loans, asking for a salary advance, using your savings, borrowing from friends and family, and postponing non-emergency purchases. 

These options will help you mitigate the risk of losing your vehicle and potentially paying high-interest rates and fees.

If you can’t find an alternative loan, consider liquidating your car by selling it or trading it in for a less expensive one to raise cash. This can be a good option if you do not rely heavily on your car and can find alternative transportation or the exorbitant interest and fees of logbook loans make credit too expensive.

By considering these alternative financing options, you can protect yourself from the risks and high costs of logbook loans. You can also make an informed decision about the best way to borrow money for your financial needs.

Read Also: 6 Ways to Deal With an Emergency Without an Emergency Fund

WRAPPING UP

Taking a logbook loan can lead to financial problems if you don’t approach it well. To avoid these potential troubles, you should educate yourself about this product, understand its terms and conditions, and compare offers from different lenders before deciding. 

By taking the measures discussed above, you will be able to borrow responsibly, avoid getting into debt you cannot afford, save your car from repossession, and financially protect yourself. 

Finally, prioritise your financial wellness by looking beyond the loan's short-term benefits and considering the long-term implications of taking on debt.