Logbook Loans vs. Payday Loans: Which One Should You Choose?

If you’re someone who has been shopping around for a loan, but you have been dealing with bad credit as well, you’ve probably encountered logbook loans and payday loans frequently. Here, we’re going to enlighten you about the difference between the two.

Firstly, both loans have no credit check involved, meaning you can easily get one no matter how ruined your credit rating might seem to traditional creditors. Even if you’ve been struggling with IVA’s or bankruptcies, there’s always a room for a borrower like you with these types of lending. With a payday loan, you can loan a small amount depending on how much you earn. If you’re an average earner, it may not be much, so if you need a substantial amount of cash and have your own car, a logbook loan may make better sense.

Second, both are short-term loans that tend to have considerably high interest rates. The average APR on them is higher than the average interest repayment on a personal loan. However, when compared side by side, logbook loans still appear a bit more competitive.

Now while APR and representative APR can be confusing, let’s see what a regular logbook loan site charges. Logbook loan companies are legally required to display the 1270% APR on its homepage, but that does not mean you have to pay 75 times more than the 17.9% of a representative APR credit card or 194 times more than a 6.9% interest loan. Most companies have set their interest rates at 0.80% per day, making them one of the most cost-effective short-term loan options in the market today.

The following are the minimum requirements set by the FCA:

  • An initial cost cap of 0.80% per day – This means that interests and charged fees must not exceed 0.80% of the total amount loaned.
  • A £15 cap on default fees – If the borrower defaults, penalties must not be more than £15. Interest can still be charged after default but they must not go over the initial rate.
  • A total cost cap of 100% – Lenders must not charge more than 100% of the amount loaned in fees and interest.

While payday loans are flexible and relatively easy to avail of, they can be more expensive to pay back. If you find yourself earning less than what you usually spend, it becomes easy to rely on payday loans to get by. However, should you fail to make repayments, the lender can default you, resulting in higher penalties and interests that accumulate every missed payday.

This is when a logbook loan becomes a viable option in comparison. With logbook loans, you can easily stretch your repayment periods so that you will have to make affordable payments monthly. This reduces the chance of missing your due dates and accruing more interests and penalties. This can also protect your vehicle from being repossessed.

Logbook loans generally have lower interest rates and are a great way to consolidate your current debt. A good use for a logbook loan is to pay back all current short-term loans, so that you will only be left with one account to manage all your debt. They can be a great solution for many financial problems, but keep in mind that they can also be problematic if you use them to buy things you can’t afford.