UK Logbook Loans – Worth Banning?

There has been a lot of talk recently in the UK press about the fact that logbook loans might soon be made illegal. Kevin Brennan, the consumer minister is at this very moment trying to push through a bill that will ensure that credit companies can no longer offer this product to consumers. But why is this product alone being targeted, and is there are reason why the offer fast cash loan products such as payday loans are being left alone?

UK logbook loans work when a potential lender uses their vehicle as collateral for a loan. The reason for doing this are usually because they have a bad credit rating and wouldn’t be able to find a lender willing to give them the cash without this guarantee. The companies know that if you fail to meet all the repayments they can simply repossess your car and sell it at auction to recoup the money you still owe. Since you are likely to be loaned around 50% of the market value of the vehicle the lender will have plenty of leeway to get the money back without worrying that they are going to be left short.

The consumer is drawn to this product when they have no other option available to them and usually in an already difficult financial situation. The companies levy a very high interest rate meaning you have to repay much more than you borrow over the period of the loan. This makes the repayments high and if you are struggling with your finances as things are at the moment its easy to see that things can get even worse when you have to worry about making these payments each month from your pay packet. If you fall behind and lose your car you are going to be in a world of hurt and possibly find it impossible to get to work or take kids to school.

With things considered its easy to see why many people want to make logbook loans, but not so easy to understand why no one is saying anything about payday loans, which are just as troublesome.

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