Are you unsure about what kind of loan to take between a logbook loan and a guarantor loan? This post was written to help your decision making easier. I will be taking you through the journey of both types of loans in a few, plain words.
What are logbook loans?
Logbook loans are secured loans designed for people who are unable to secure loans from organisations like banks because they have poor or no credit history. The basic requirement for accessing a logbook loan is having a vehicle (which could be a car, truck or motorbike). The logbook loan is granted in lieu of the vehicle registration papers, also known as logbook or since 2005 V5 document. Logbook loans from LogbookLoansONline are also known as V5 documents.
What are guarantor loans?
Guarantor loans are unsecured loans designed for people with poor or no credit records who do not necessarily own assets like cars or homes, but are however have a friend, spouse, relation or otherwise guarantor who does.
How they work:
For logbook loans, the borrower surrenders their logbook, also known as V5 registration documents for the vehicle they are setting in lieu for the loan, to the lending company. The lender then values the vehicle whereupon a bill of sale is agreed on and signed and the borrower can leave with the money.
Logbook loans are available for all citizens of the United Kingdom, insofar as they own a serviceable vehicle.
Guarantor loans on the other hand require the borrower to present a guarantor who has a good credit score and is willing to pay the balance should a borrower default on their repayments. The guarantor will be required to sign a document with the lender assuming responsibility for the debt should the borrower default.
Guarantor loans are only available to people who are 18 years and above and are UK bank account holders. Their guarantor needs to be 21 years and above and also a UK bank account holders. The guarantor becomes responsible for paying the loan if the borrow is unable to pay.
How much can be borrowed and what is the validity:
You can secure amounts up to £50,000 or more depending on the value of the vehicle used as security and validity goes for 3 years or more for logbook loans.
As for guarantor loans, you can borrow as much as £10,000 or more which is payable in 1 to 3 years.
Although APR (annual percentage rate) depends on amount borrowed, guarantor loans can only have interest as high as 100%, commonly between 40-50%. This makes guarantor loans a good loan for bad credit record holders.
Logbook loan on the other hand can have interest as high as 400% or more. This however depends on the company offering the loan. Sounds like a bad idea? Well, it is not because logbook loans are more flexible than guarantor loans
Logbook loan might have a higher interest rate, but consumers should not be discouraged as this is only due to the flexibility of the loan. Although you will be paying a bigger amount in interest than you borrowed, the flexibility of the loan should be a plus since you will be paying back in much smaller denominations compared to amount borrowed.
Guarantor loans aren’t so flexible in comparison to logbook loans in terms of validity but their interest rate is much smaller than logbook loan.
The financial conduct authority regulating the interest rate of guarantor loan makes it a more consumer friendly loan. The fixed interest rate means consumers don’t have to overpay for what is being borrowed.
Logbook loans in countries like England, Northern Ireland, and Wales do not offer much protection to consumers. The only exception is in Scotland, where bill of sale isn’t recognized but rather agreements like hire purchase are in place; offering protection to consumers.
Guarantor loans can be hard to secure mainly because of the guarantor requirement.
Logbook loans are very easy to secure as paperwork does not take long and the process is relatively easy. Many borrowers of logbook loans can be in and out with the cash in less than 24 hours.
Guarantor loan is a less risky loan for the borrower because they typically have nothing to lose. The guarantor is the person who bears the risk. However, in most cases, guarantors are only made to pay for the loan only when the borrower has exhausted all options to pay back.
Logbook loans are more risky as borrowers stand the chance of losing their vehicles if they fail to meet up with their repayments.