When you are faced with a difficult financial situation and looking for solutions, the internet can be an intimidating place. After a simple search for personal loans and you are faced with pages and pages of companies offering payday loans, cash converter loans, logbook loans and everything in between. So, how do you know what is right for your individual situation and what to avoid? Payday and logbook loans are two popular choices for getting fast access to money, but there are a great many differences between them.
Vehicle vs paycheck
Logbook loans are secured against your vehicle, providing that you own it outright, but you can still use it as you normally would. It is your responsibility to ensure that the insurance, tax and MOT are up to date, and once the loan has been repaid the logbook is sent back to you and you resume ownership. Payday loans, however, are secured against your paycheck, offering a short term solution to any minor financial issues. The key difference here is that payday loans are designed to be short term and repaid by the time you get your next paycheck from your employer. Some can be extended, but this is usually accompanied by painful interest rates and even additional fees. Logbook loans, however, can be taken out for shorter periods, but are usually for larger sums of money, depending on the value of the vehicle, and up to five years. Therefore, while many people consider payday and logbook loans to be similar, they are really intended for very different purposes. The payday loan is best suited to very short term financial issues, when no other solution is available and the borrower is guaranteed to be paid by their employer within a few weeks. The logbook loan offers a little more freedom and is therefore thought of as a safer alternative, however neither should be rushed into without careful consideration.
The dangers of payday loans
When you sign up to a payday loan online at first it appears very easy and straightforward, with clear indications of how much you will have to pay back for the borrowing period. For anyone who is unused to applying for loans and dealing with APR interest, or anyone dealing with the stress that unexpected financial issues bring, payday loans can be deceptively complicated with small print that invariably catches them out. The very situation that payday loans are designed for is what causes people to rush into the agreement without fully understanding what they are getting themselves into.
Payday loans often lead to a cycle of debt, as people borrow more than they can afford to pay back, then extend the loan, incurring more fees and high rates of interest. Some will even take out more payday loans with other loan companies, trying to clear their debts but only increasing the total amount they owe. This then damages their credit rating, leaving them in a far worse position than when they started out. You can read more about the dangers of payday loans and the alternative options available at Experian.
The safety of logbook loans
Logbook loans are often thought of as a safer option as you know exactly what fees and interest rate you are signing up to at the beginning. At CarCashPoint there are absolutely no setup, admin, early repayment or exit fees, so at no point will you get caught out with unexpected fees. The interest rate is on a Pay as You Go basis, meaning you only pay interest for the time you hold the loan; if you choose to pay it off early, the interest ends there. This added level of control in the hands of the borrower is another reason why logbook loans are considered safer than payday loans. You choose how long you want to take the loan out for and you can end it earlier if you want to. For those who have been refused loans before due to bad credit, CarCashPoint is a welcome alternative, as they don’t carry out a credit check. So, you don’t have to worry about your application being rejected due to bad credit or it affecting your credit score. If the repayments are made on time, having a logbook loan can actually improve your credit rating.
Is a logbook loan or a payday loan right for you?
While there are many differences between a payday loan and a logbook loan, the choice between the two really depends on the individual’s needs and neither should be rushed into. Consider why you need the loan, how much you need, when you can realistically repay it, and what will happen if you can’t make the payments. If you need over £1000 and more than a few weeks to repay the loan, a payday loan is not the right option for you and your situation is much more suited to a logbook loan. You can decide how much you borrow, based on the value of your car or vehicle, how regular your payments are and the duration of the repayments.
If you think a logbook loan is the right choice for you, or to learn more, contact CarCashPoint to speak to one of our customer service advisors on 0333 220 4419 or Submit an application.
