Logbook Loans: Should You Be Worried About Joint Ownership? 

Imagine you need some quick cash, and you have a car that's worth a good amount of money. You've heard of logbook loans and decided to take one. But should you?

Before taking any loan, you must understand how the process works and what dangers you face. This is specifically important when the loan in question is secured, and you face the risk of losing your collateral, as is the case with logbook loans.

A logbook loan is a type of secured loan where your motor vehicle serves as collateral. With this type of loan, you can borrow a specified amount from the lender based on the value of your vehicle. The financier's chosen appraiser determines the value of the vehicle. 

Once your loan has been approved, you must enter into a temporary joint ownership arrangement with your lender. In this arrangement, the lender will initiate an in-change process that gives them equal ownership of your vehicles. So what does this mean, and should it worry you?

This article will explore how the logbook joint ownership process works, if a logbook loan is right for you, and what you can do to ensure you don’t lose your car.

Read Also: 10 Warning Signs You Are Not Ready to Take a Loan

What Happens in Logbook Loan Car Joint Ownership?

When taking out a logbook loan, it's essential to understand what happens in car joint ownership. Joint ownership in logbook loans is distinct from other types of joint ownership, as it's a specific legal process established by the National Transport and Safety Authority (NTSA). 

The NTSA joint ownership process involves two main steps. Let’s say that you have a car and want a logbook loan. The first step you will take as the registered owner is to submit the logbook to the financier, and second, the financier logs on to their TIMS account to initiate the in-charge process. 

The NTSA in-charge process gives the lender a lien—a legal claim or right over your vehicle until you repay your debt. The lien gives the lender a security interest in your vehicle, and it remains in effect until you fully repay the loan, after which the lender must release the lien.

This requirement is to prevent you from selling the car until the loan is repaid and allow the lender to sell the vehicle legally if you default or become a candidate for repossession.

In a logbook loan, you transfer ownership of your car, van, or motorcycle to the lender as collateral for the loan. While making repayments, you keep possession of your vehicle and continue using it. Once you've repaid the loan, you will regain sole ownership of your vehicle.

However, if you default on your logbook loan, the lender can seize or repossess your vehicle and sell it to recover their money. They can do this without requiring a court order. 

This is why it's crucial to understand the terms and conditions of your logbook loan and seek the assistance of a legal professional before signing the agreement. Remember that your vehicle is your collateral, and failing to repay your secured loan may lead to losing ownership.

Read Also: Why Banks Are Going Slow on Loan Defaulters 

Is a Logbook Loan Right for You?

Logbook loans have become a popular financing option for anyone seeking quick e access to cash. One of the most significant advantages of logbook loans is their accessibility. 

Unlike traditional loans, logbook loans are relatively easy to obtain, as long as the vehicle is registered in your name. Additionally, logbook loans have few restrictions on how the funds can be used. This allows borrowers to address various financial needs, from unexpected expenses and business capital to weddings and home renovations.

Since the car acts like collateral, logbook loans allow borrowers to access considerable money without a cosigner. This makes them ideal for those who do not have a credit history with the lending institution.

But all these perks come at a cost, and the biggest one is you stand to lose your vehicle if you default. Your lender can sell your car at a throw-away price to recover any money they owe you. And this can cause you much loss. This is why asking yourself if you can afford a logbook loan before signing the dotted lines and collecting your money is important.

Read Also: The Dangers of Co-signing a Loan in your 30s 

What to Consider Before Taking a Logbook Loan

As discussed above, when you take a logbook loan, you go into an individual-financer agreement with the lender. This form of joint ownership isn’t equal. 

For the loan duration, your lender will have more power over the vehicle than you. They can seize and sell it without your permission or court order if you become a candidate for repossession. Meanwhile, you won’t be able to do anything, including selling it, without the lender’s permission. 

With that in mind, you should consider these five things before taking a logbook loan.

1. Your Ability to Repay: How confident are you that you will not default? The best way to answer this is to consider your future income and what you intend to do with the loan. If you are going to spend it on emergency or consumer expenses, ensure your future income will be enough to service the loan. If you plan to invest it, do a risk assessment to ensure the loan will repay itself.
2. The Cost of the Loan: Logbook loans have high-interest rates and a lot of fees that can quickly add up. You must calculate the loan fees and ensure it makes sense per your needs. You should also remember that you will make a lot of upfront non-refundable payments before loan approval, including application fees and vehicle appraiser fees.
3. The Terms and Conditions of the Lender: Breaking the T&Cs of the lender always constitute defaulting and could lead to vehicle repossession. For instance, if your work involves driving to neighbouring countries, ensure that you tell your lender. Many logbook financiers will bar you from taking the vehicle outside Kenya.
4. Lender Reputation: Before taking a logbook loan, ensure that you do enough background research on your lender by reading reviews and getting second opinions from loved ones. Their track record will tell you a lot about them. You should also shop around to compare various financiers.
5. Alternative Options: Depending on your urgency and needs, you should consider other financing options. With many consumer and emergency loans available in Kenya, you should ensure you get the best deal. 

Read Also: 9 Types of Consumer Debts and How to Get Them in Kenya

How to Prevent Logbook Loan Default 

Logbook loans can be a lifesaver during financial emergencies, but failing to repay them on time can result in losing your car. As a borrower, taking the necessary steps to prevent the loss of ownership is crucial. 

There are things you need to do when planning to get the loan, before applying, and during repayment. By following these steps, you will successfully repay your logbook loan and prevent the loss of ownership of your vehicle.

What To Do When Planning To Get The Loan

• Determine the amount needed: The first step is to determine how much you need to borrow. You should be realistic and borrow only what you need. Logbook lenders will offer you as much as 80% of your car's force sale value. But that doesn’t mean you should take it. 
• Assess your ability to repay: Look at your income and expenses to determine if you can afford to repay the loan on time. 
• Research lenders: Do your research and compare different logbook loan lenders. Look for reputable companies with reasonable interest rates and repayment terms that suit your need. For instance, some lenders expect weekly repayment. This can be hard if you usually receive your wages at the end of the month.
• Read the terms and conditions: Understand the interest rate, repayment period, additional fees or charges, and most importantly, what the lender constitutes as default.

What To Do Before Applying For The Loan

• Check your credit score: Get your CRB certificate before applying for a loan. This will help you know if you have any dent in your credit history that can affect your application. A good credit score can also help you negotiate a lower interest rate.
• Gather the necessary documents: Make sure you have all the required documents, such as proof of income, proof of car insurance, and vehicle registration documents. This will fasten the application process for you.
• Verify the vehicle value: Have the vehicle professionally valued to ensure that the loan amount is in line with the vehicle's worth. Remember that some lenders will send you to their chosen appraiser. Therefore, confirm with your lender before you pay another valuer.
• Seek legal advice: If you have doubts about the loan agreement, seek legal advice before signing.

What To Do During Repayment

• Make payments on time: The most important thing to do. Late or missed payments can result in additional charges and penalties. It can also put your vehicle at risk of repossession.
• Communicate with the lender: If you're having trouble making payments, let your lender know ASAP. They might offer you a new repayment plan that suits your financial situation.
• Keep track of the loan balance: Regularly check your balance to ensure it reduces as expected. This can also help you detect discrepancies or errors in the loan account.
• Be aware of your rights: Know your rights as a borrower and the procedures for repossession. If you feel that your rights have been violated, seek legal advice.

Read Also: How to Waste Loan Money in 8 Simple Steps

WRAPPING UP

After completing the repayment, revisit the NTSA in-charge process to ensure joint ownership is severed, and you regain complete control of your car. Get the original logbook from the financier and submit it to NTSA for amendment. Once done, you can apply for a new logbook and officially become the sole owner of your car.

Logbook loans, like every other consumer loan, should be your last option. They’re not only expensive, but they put your vehicle at risk as they act as collateral. Moving forward, you need to start thinking of strategies to help you avoid debt. This includes: building an emergency fund, planning your big purchases, and considering other loans with better terms, like business loans.