Logbook Loans Want To Be An Alternative To Payday Loans – Can They?

Question about logbook loans

 

All the talk in the short term loan industry at the moment are the caps being introduced on payday loans.  it is predicted that there will only be 4 main lenders left after all the terms that are being imposed by the Financial Conduct Authority have been implemented.

In the news the crackdown is welcomed by some, but others say that it will lead borrowers to the black market and to lenders that aren’t in any way regulated and who lend money illegally.  We believe that this may be the case for a few borrowers, but the majority will probably find loans elsewhere in the short term market.  Lenders such as Varooma who are one of the main logbook lenders have already stated that they hope that because of this regulation, people will move more towards logbook loans because they are similar to payday loans but are taken out over a longer period and have lower interest rates.

Criticism of logbook loans

Logbook loans have themselves faced some criticism in recent years due to the hard sell that some companies have used as well as the excessive charges lenders have levied on customers when they haven’t paid their debts.  There are even campaigns against logbook loan companies because of the way that they repossess cars even when the owner hasn’t taken out a loan.  This occurs when someone takes out a loan against a vehicle and then sells it to someone else with the loan still attached to it.

Big Impact

When the Financial Conduct Authority was first given the task of regulating the short term loan industry they would have wanted to tackle payday loans first in order to make a big splash so that companies took notice and consumers felt more secure.  With the moves they have made so far in that industry it seems that has worked.  Logbook loan companies and Guarantor loan companies may feel that they are in the right place to take the custom payday lenders have lost, but it will only probably be a matter of time before they face similar scrutiny themselves, it might just be that this scrutiny is not as publicised as payday lending.

Whether or not logbook loans can take the custom of payday loans remains to be seen.  From afar it seems that they might be in a good position to do so but it isn’t until all the waves of regulation have been passed that we will be able to see how the land lies.  It might be that short term lending is severely restricted in all it’s forms and the people who campaign against such strong restriction find that what they say is correct and borrowers who are desperate for money move to the black market.

 

Can Loans Be Arranged For Borrowers With Bad Credit Scores?

 

Bad Credit

One of the most frequent questions that lenders are asked is about the availability of short term loans for people with bad credit ratings.  Very often, borrowers need to raise cash quickly, but find themselves stuck because they have a poor credit history.

Most of the main banks won’t consider anyone with any kind of poor credit rating for a loan or credit card.  This pushed the  borrowers into other markets and to companies that have high interest rates, but will lend to those who have black marks on their credit score.

Risk means high interest rates

These companies will justify their high interest rates by saying that they need to charge them because they are taking a risk.  They are lending to someone who doesn’t have a good track record when it comes to borrowing in the past.  They need to recoup as much of the loan as they can as quickly as they can, in case the borrower defaults.  The loans are also often over short periods of time, which also means interest rates need to be high, to cover the cost over that length of term.

Payday companies have operated using this approach in the past and they rely on borrowers who pay off their loans and immediately take out another one, to see them through to payday, and the cycle continues.  Because the rates are high, it is hard for the borrower to actually pay off the original loan, so they are now in the much talked about “spiral of debt”.  This is one of the reasons why payday lenders have been severely looked into by the Financial Conduct Authority.

Transparent lending

You will find that any short term lender now has to link to the government website the Money Advice Service and include a warning about taking a loan on all of their marketing material.  They need to display representative examples on their websites in order to make their rates much clearer for potential borrowers.

It isn’t a dead end for those with bad credit, but they will have to deal with far higher interest rates than they might otherwise have had to.  Logbook loans and payday loans can be flexible and most kenders now don’t just base their decision on an arbitrary credit score, they look at bank statements and evidence of income to decide on whether to lend to someone.  Applying for a short term loan is now more like applying for a mortgage, with far more stringent checks standard in the industry.