Things to Consider Before Taking a Logbook Loan in Kenya

When there is an emergency, it is human nature to look around us for anything that can help salvage the situation. Hence, on occasion, when you have a financial crisis - it may be an urgent medical need, a business need, school fees need, and other scenarios - you are likely to turn into a loan as a feasible option. 

The financial sector in Kenya has seen some dramatic changes in the recent past. One of the notable changes is the growing popularity of logbook loans. 

Logbook loans have quickly gained fame for being the easiest and fastest loans to get if you own a vehicle. Unlike online loans, e.g., digital loans, the amount depends on the value of the vehicle one owns.

Therefore, logbook loans can easily be the savior you need when in need. However, if you are thinking of taking a logbook loan, here are 10 key things to consider beforehand. 

What is the loan for?

Logbook loans are helpful for taking advantage of quick opportunities such as buying land or an asset with a time limit, etc. They can also come in handy when dealing with an emergency situation or growing your business. 

Still, before you decide to take a logbook loan, you should first think:

• Why do I need the money and what for? 
• Can the need wait?
• Do I have alternatives?
  

Also read: Haste Makes Waste: Why Hasty Financial Decisions Lead to Regrets.

The cost of Credit

What is the cost associated with the said loan? Nearly all logbook loan providers will charge an applicant upfront fees that you need to pay before the loan is processed. Depending on the lender, other charges might include;

• Interest rate
• Processing fees
• Valuation fees
• Logbook Search + Discharge
• Car Tracker
• Comprehensive insurance cover
  

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. 

Your Income

It is required to have consistent, sufficient, and reliable income before you consider taking a logbook loan. After all, if you do not pay the loan on time and in full, you risk losing your vehicle. 

Some lenders require you to demonstrate steady employment or business income before your loan is approved. You will be required to provide either a six-month bank statement or a three-month payslip before you can be considered for a logbook loan. 

The income level will depend on the loan amount. 

Repayment plan

How do you plan to pay back the loan? Do you have enough disposable income to pay back the principal plus interest? Wait, can you really pay off the loan? On-time and in-full?

Having sufficient income is far from being able to service a loan. In addition to having a steady income, you also need to consider your ability to pay. How much of your income is left after bills to allow you to pay off the loan? 

Remember skipping a payment or failing to pay back the loan can come with severe consequences to your finances. Hence, take your time to think through your payment plan before you submit the application. 

Also read: All You Need to Know About Logbook Loans in Kenya.

The repayment terms 

What is the repayment period? Do you pay daily, weekly, or monthly? In most cases, the repayment period is determined by the lender. The lender might ask you for a weekly payment.

Also, consider the repayment period in relation to your ability to pay. The longer the repayment period, the lower the installment amount. However, longer tenure might also indicate a higher overall interest.

In addition, check what the payment terms are. Can you pay in bit sizes? Are there penalties? What are the percentages? When does the lender consider the loan defaulted?

Also, do you submit manually, or is it automatic withdrawals? Both options have pros and cons, which you also need to understand. 

Value of the vehicle in relation to the loan amount you are seeking to get

The qualifying loan amount is pegged on a percentage of the vehicle’s forced sale value (FSV). So, ensure the amount you intend to borrow is below the value of your vehicle. 

FSV is the amount the car would sell at if needed to be sold. So if the lender is offering 50% of FSV, it means if your car's FSV is Ksh. 600,000 you can only get up to Ksh300,000. 

Application approval time

Many people consider logbook loans during situations that can be categorised as emergencies. 

In such circumstances, it might not be ideal to wait for days to get your application approved and then the amount disbursed. Therefore, you need to check how long the lender takes to process the loan.

While traditional lenders may take a few days to provide the loan amount, most logbook lenders disburse the same within 24 hours of approval, which is one of the main advantages of logbook loans. 

Credibility Of The Lender 

Is the financial institution reliable and reputable? It is crucial to check the lender's credibility before you take any loan. There are many online scams who, at the very least, can easily con you of your hard-earned cash with hidden fees. 

Whichever lender you pick to borrow from, ensure that you thoroughly check their credibility first. You can start by reading online reviews and testimonials. Alternatively, ask for recommendations from family and friends. 

To check some of the reputable logbook lenders in the country today, visit our logbook loan comparisons page. 

Transparency 

Do you have all the facts? It is in your rights for the lender to provide you with all the facts while applying for a loan. Usually, the facts are presented as a loan agreement. Therefore, ensure that you have read and understood the agreement’s fine prints. 

Consider having a one-on-one discussion with the lender if you have any doubts. 

WRAPPING UP

There are many factors to consider before taking a logbook loan. Now that you have a basic guide of what to check for, use them as a guideline to help you choose the best logbook loan offer. 

It is also crucial to go with what works for you and your situation rather than going for what is currently popular in the market.

On Money254, you can compare each of the logbook loans available to you on interest rates, fees including disbursement and processing fees, interest rate structure (flat or reducing balance), maximum and minimum tenure, as well as any bespoke eligibility requirements.

Visit our logbook loan comparisons page to view, compare and choose a logbook loan that matches your needs.

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