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Logbook Loan or Payday Loan? Which is the Better Option?

If you live in the UK and are tired of fruitless attempts at getting a loan, you have likely already heard of two types of short-term loans that can save you from all (or, at least most) hassle that you have to go through in order to borrow some money from a bank.

The two types of loans are, called logbook loan and payday loan. And, while they have a number of things in common, such as not requiring a spotless credit rating, being short term and charging an interest rate, they also have quite a few differences as well.

The Amount You can Loan

The amount of money a logbook loan lendercan give you is usually around 75% of the value of your vehicle. The range of these loans is anywhere from £500 to £50,000 and the loan represents the combination of the value of the vehicle and your capacity to repay the particular loan.

On the other hand, a “cash advance” (amount of money you can get via a payday loan) depends on your paycheck. Because of this, payday loans are usually small in nature (often only a couple of hundred pounds), while getting any larger amount via this method is very difficult.

What Collateral is Used?

For both of these loans, you need a certain collateral. In the case of a logbook loan, this will be the vehicle that goes under your name. In order to be approved for it, your motor vehicle needs to be free of any financing, with a proper insurance, MOT certificate and in working condition. You'll still be allowed to use your vehicle as before, but if you fail to adhere to the agreement you made with the lender and fail to make the back payment in full, your vehicle can be sold to reclaim the amount of the loan.

When it comes to payday loans, the lender will extend the amount based on your next paycheck. What this means is that you are giving him a post-dated check charged on the amount you borrowed from him. Once the next payday comes, the check is cashed and you have paid the loan.

Rate of Interest

When it comes to rate of interest, a logbook loan has a higher one than those charged by your bank, but at the same time, lower than those you'll get from payday loan companies. This means that logbook loans are a better option if you want to save money.

The usual tenure of a payday loan is around 30 days. Due to this, the rate of interest that you will be charged for is very high. This is because they are designed to provide the maximum benefit to the lender in the least amount of time. What this means to you as a borrower is that you can end up paying a much larger amount than the one you borrowed in the first place.