Logbook loans can be a life line when money is tight, but they are also a financial commitment, and getting it wrong can cause you more money problems. Use these seven habits to help you borrow money responsibly.
1. Begin sensibly
- Decide exactly why you need a loan (home repairs, utility bills, or consolidating a few existing debts?).
- Avoid vague goals like “extra spending money” this increases the chance of borrowing more than you really need.
- Think about how this type of borrowing fits into your wider finances over the whole term of the loan.
2. Borrow a minimum
- Don’t be tempted to borrow more than you actually need, this can cause you more money problems.
- Use a online logbook loan calculator to see different borrowing amounts across various monthly payment terms, and see what you are comfortable with.
- Borrowing even a tiny bit extra, especially with a high interest rate, can really make your total cost jump up, so try to stick to the absolute minimum.
3. Choose the right term length
- A longer term length to pay back, usually means lower weekly or monthly payments but in the end, a higher overall cost.
- Try to find a balance between speed and affordability, with a loan term that works for you, and being able to reduce the debt by making overpayments.
- Choose a lender that lets you pay off the loan early without any penalties, this could save you a significant amount of money.
4. Budgeting
- Understand how your loan payments fit within your usual monthly outgoings, such as rent/mortgage, household bills, groceries and any other debts you may have.
- Ask yourself if you could still manage the loan if your income dropped or your bills went up?
- With any life changes, It can be easy to run into difficulty with a loan, so try to build a small buffer into your budget.
5. Understand the loan agreement
- Read the loan agreement carefully, interest rate (APR), fees, and what happens if you miss a payment.
- Understand what will trigger any extra charges, repossession, or legal action.
- Keep a copy of all documents, emails and payments in case of any dispute.
6. Keep communication open
- If you think you might struggle to make a payment, contact the lender instead of ignoring the problem.
- If you foresee any difficulties, communicate early and lenders are usually willing to make alternative plans.
- Avoid taking out another loan just to cover the initial loan, this is often a warning sign to other lenders.
7. After the loan
- Once the loan is repaid, look at changes you can make to not borrow again. For example, building a small emergency fund, cutting subscriptions, and even restructuring debts.
- If you’re using a logbook loan to consolidate other debts, try to close those old accounts once they are paid off. It can help you avoid the temptation to borrow more and keep your finances on track.
- Consider getting free debt advice if your overall situation is tight, particularly if you already have multiple loans or cards.
In Summary
If you can control the way you use a logbook loan, they can be a flexible and extremely useful tool, with fast access to funds, but it is still a loan, and that demands extra discipline.
By following these 7 steps, you put yourself in a better position to borrow responsibly, and take greater control of your finances.