Weighing Logbook Loans Against Other Options

When seeking a loan, you'll encounter a wide range of options, including logbook loans, auto loans, personal loans, business loans, and many more.

However, here's a valuable tip: Making an informed decision by understanding their distinctions before you commit is a wise financial choice.

In this article, we will take a journey to analyse logbook loans in comparison to other available options. We will delve into how they work, examine interest rates, discuss eligibility criteria, and highlight potential risks.

By the time we're done, you'll have a clear picture of which loan type best suits your financial situation.

Understanding Logbook Loans in Kenya

How Logbook Loans Work

Logbook loans are a form of secured loans that use your vehicle as collateral. Simply put, your vehicle has a monetary value. It’s market value and the Forced Sale Value (FSV). FSV is the amount your car could fetch if sold under distressed conditions, such as at an auction.

When you apply for a logbook loan, the lender assesses your vehicle's FSV. Next, they determine the loan amount you're eligible for, usually 50% to 80% of the FSV.

For instance, if your vehicle has an FSV of Ksh800,000. If you apply for the Umba Logbook loan, which offers loans up to 50% of a vehicle’s FSV, you can secure a loan of up to Ksh400,000.

Although you retain possession of your vehicle during the loan term, you temporarily transfer the vehicle's logbook to the lender. This serves as security for the loan.

Read Also: Understanding Market Value vs. Forced Sale Value.

Common Uses of Logbook Loans

There’s no restriction on how to use your logbook loan. Here are some common uses of logbook loans.

• Quick investments: They can provide the necessary funds for seizing investment opportunities or growing your business when you promptly need capital
• Emergencies: When unexpected financial emergencies arise, such as medical bills or urgent home repairs, logbook loans can offer a lifeline to cover these unexpected costs.
• School fees: You can use logbook loans to fund educational expenses.
• Credit history: if you have a less-than-perfect credit history, logbook loans can be an option since they only need your vehicle as collateral.
• Life changes: Significant life events like weddings, relocations, or renovations often require substantial funds. Logbook loans can help you navigate these transitions.
• Debt consolidation: Logbook loans can be used to consolidate existing debts, allowing you to merge multiple loan obligations into a single manageable payment.
• Business expenses: Small business owners can utilize logbook loans to cover business-related expenses, whether it's purchasing inventory, expanding operations, or addressing cash flow gaps.

Read Also: Why are So Many Kenyans Taking Logbook Loans?

Eligibility Criteria for Logbook Loans

The advantage of logbook loans is that they are accessible even if you have bad credit, they don't require a cosigner since your vehicle acts as collateral, and there’s no strict requirement on what you can use the loan for.

That said, not everyone qualifies for a logbook loan. Depending on the lender, here are some requirements you need to meet;

1. Year of manufacture cutoff:  There may be a cutoff year for the vehicles a lender accepts. For instance, the car age limit for the Mogo logbook loan is 1998, while that of the Momentum Credit logbook loan is 2005.

2. Necessary documents: To complete the application process, you'll need to provide essential documents such as:

• Original logbook,
• Recent bank or M-Pesa statements
• Proof of income like payslips (if employed) or a business permit (if self-employed)
• KRA pin,
•  Identification documents such as your ID or passport photo
• A vehicle valuation report
• Proof of comprehensive insurance

3. Preapproval fees: Keep in mind that there may be preapproval fees associated with logbook loans. These fees can include valuation charges:

• NTSA  incharge fees
• Car tracking costs
• application fees
• Chattel registration fees
• Loan disbursement charge
•  Insurance fees

4. Accepted vehicle models: Note that some lenders may have restrictions on the vehicle models they accept for logbook loans. For instance, Ngao Credit Auto logbook loan may not consider vehicles from manufacturers like Vauxhall, Jeep, and Chrysler, among others.

As you’ve seen, each lender may have unique eligibility criteria. So carefully compare, review, and understand these requirements before applying for a logbook loan. The good news is that you can use our logbook loan comparison tool to compare and select a lender that best suits you.

Exploring Alternative Financing Options

Let's take a closer look at some  financing options, each with its own set of pros and cons:

• Personal loans: These loans are versatile, allowing you to use the funds for any personal expenses. However, they may require income verification, collateral, and CRB clearance. Here are institutions offering personal loans in Kenya.
• Business loans: Designed to support business needs, these loans are of different types and are excellent for starting or expanding your enterprise. One downside is that they have a longer approval process.
• Auto loans: When buying a vehicle, auto loans can be your savior. The advantage is that the car itself serves as collateral, but you'll need to ensure you can meet the payments. Here are 7 essential tips for securing car loans. 
• Sacco loans: Offered by savings and credit cooperatives, Sacco loans often come with competitive interest rates. However, membership may be required. Here is how you can build wealth with Saccos in Kenya.
• Mortgages: These long-term loans are ideal for purchasing homes or real estate. Your property serves as collateral but be prepared for a potentially lengthy approval process. Here is everything you need to know about mortgages in Kenya.
• Payday loans: These short-term loans are one of the easiest loans to get in Kenya. They offer quick access to funds, making them suitable for emergencies. However, they usually have higher interest rates and tight repayment deadlines.
• SME loans: Tailored for small and medium-sized businesses, SME loans can cover various business needs. The drawback is that they may require substantial documentation and, in some cases, collateral. Examples of SME loans you can apply for include Letshego SME loans, Premier Credit SME loans, and HFC limited SME loans.

Logbook Loans vs. Other Financing Options

Let's delve into a comparative analysis of logbook loans against various alternative financing options. We'll explore critical factors that can influence your choice:

Loan tenure 

Logbook loans often come with longer tenures, some extending up to 60 months, offering more manageable monthly payments. This makes them more flexible in terms of repayment, especially when compared to payday loans.

Payday loans on the other hand repayment is usually expected on your next payday, which can lead to financial strain if not managed carefully.

Speed of approval

Logbook loans offer faster disbursement speeds, making them a suitable option for urgent financial needs. Some lenders have a turnaround time of 24 hours.

This is unlike business loans which may involve an extended approval process. The process involves gathering the necessary documentation, and the lender's due diligence can take time.

Similarly, mortgage approvals take lengthy processing times. It can extend to several weeks or even months. The approval process involves detailed property assessments and documentation.

Read Also: I Want to Take a Logbook Loan to Support My Business. Should I?

Eligibility criteria 

Logbook loans stand out by granting access to substantial amounts, even if you have a less-than-perfect credit history. 

Additionally, logbook loans typically don't require a cosigner or guarantor, unlike some Sacco, business, and personal loans that might have such stipulations. 

Your car logbook is the security. Besides,  there is usually no need for a downpayment like when applying for an auto loan. 

Risk factors 

In all secured loans, the biggest risk is losing the asset you used to get the loan. For logbook loans, you risk losing your vehicle if you default on the loan, as borrowers temporarily transfer their logbook as collateral.

This is also the case for auto loans. On the other hand, defaulting on personal loans could lead to higher interest rates and poor CRB ratings.

Flexibility in loan use

Logbook loans and personal loans are versatile and don't impose restrictions on how you use the borrowed funds. This flexibility makes them ideal for various situations.

On the contrary, business loans are tailored for specific purposes, such as expansion, equipment purchase, or working capital. They might not be suitable for personal financial needs or other non-business-related expenses.

Similarly, auto loans are exclusively for purchasing vehicles. You cannot use them for other purposes. This limits their versatility compared to logbook loans.

Read Also: Kenya’s Fastest Logbook Loans

Risks and Responsibilities of Logbook Loans

Logbook loans come with their share of risks and responsibilities. These include:

1. Risk of vehicle loss:.You must understand that your car serves as collateral, and in cases of non-payment, the lender can legally take possession of the vehicle
2. Responsibility for loan repayment: You are responsible for making timely repayments according to the agreed-upon terms.As such,  budget effectively and ensure you can comfortably manage the loan payments.
3. High-interest rates: Logbook loans can come with relatively high-interest rates compared to some other loans, such as a Sacco loan. This can increase the overall borrowing costs over the life of the loan, straining your financial situation.

How to mitigate the risks

To mitigate the risks associated with logbook loans:

1. Carefully assess your financial situation before taking out the loan. Ensuring that the loan payments fit within their budget is paramount. 

2. Explore alternative financing options with potentially lower risks, such as personal loans.

3. Inform the lender if you can’t make payments due to, say, an emergency. Many lenders are willing to work with borrowers to find alternative solutions or temporary relief, such as restructuring the loan or extending the repayment period.

Read Also: How to Protect Yourself When Taking a Loan.

Making an Informed Decision

Now that you have a clearer picture of logbook loans and alternative financing options, it's time to make an informed decision tailored to your financial needs and circumstances.

To do this, you’ll have to compare the different lenders. When comparing loans, take a close look at  these aspects:

• Additional fees: Check for any additional charges, such as processing fees, insurance fees, disbursement fees, valuation fees, logbook discharge fees, car tracker fees, application fees, late fees, and early repayment penalties.
• Interest structure: Understand the interest structure, whether it's flat or reducing, as this affects your overall loan costs.
• Repayment terms: Compare the repayment terms offered by different lenders. Some may provide more extended tenures, which can affect your monthly payments.
• Application approval time: Consider how quickly lenders approve and disburse loans, especially if you need funds urgently.

• The terms and conditions: Always read the fine print fully. If you don’t understand any ambiguous terms, ask questions or consult a financial advisor or lawyer.

To simplify your comparison process, you can take advantage of our logbook loan finder tool. This tool allows you to input your loan requirements and preferences, and it will generate a list of suitable lenders for your consideration.

Read in Detail: Things to Look Out for When Comparing Logbook Loans