A logbook loan is a specific type of secured loan that uses the borrower’s vehicle as the security for the loan. The borrower transfers the vehicle’s logbook (also known as the V5 ownership document) to the lender as collateral for the loan. However, an unsecured personal loan does not require any collateral, but will have a higher lending criteria due to the unsecured risk.
5 Key Differences Between a Logbook Loan and an Unsecured Personal Loan
Approving the Loan
Due to the borrower using their vehicle as a security, logbook loans can be a faster and easier way to borrow money. Whereby unsecured personal loans can be more difficult to qualify for, because without a secured asset, lenders deem the loan to be more risky.
Loan Amount
As the loan is secured against a vehicle, logbook loans generally allow borrowers access to a larger loan amount (subject to affordability and the value of the vehicle). Personal unsecured loans may have stricter limits on loan amounts, due to the omission of any security for the lender.
Interest Rates
Logbook loans are typically used by people with bad credit or those that want a loan quickly, therefore they tend to have higher interest rates to mitigate the risk. Unsecured personal loans will generally have lower interest rates than logbook loans due to the stricter lending criteria. (This does not apply to alternative unsecured loans like ‘payday loans’ etc That have extremely high interest rates)
Collateral
With a logbook loan, the borrower temporarily transfers car ownership to the lender as collateral for the loan, but can continue to use the vehicle during the loan term. In contrast, an unsecured personal loan does not involve any transfer of ownership or restrictions on the borrower’s personal assets.
Loan Default
In the event of a default, a logbook loan lender has the right to repossess the vehicle as it serves as collateral to the loan. Whereby, if you default on an unsecured personal loan, the lender may seek legal action to recover their losses, which could lead to wage garnishment or a lien on your property.
Conclusion
Overall, the main difference between logbook loans and a personal loan that is unsecured, is the presence of collateral. Logbook loans require collateral, which reduces the lender’s risk and can result in easier qualification, but they are generally more expensive and riskier for borrowers. Unsecured personal loans do not require collateral, which makes them riskier for lenders and can result in more difficult qualification, but they are generally more affordable and less risky for borrowers.
