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Comparing Payday & Logbook Loans

Payday Loan vs Logbook Loan
Image courtesy of Stuart Miles / FreeDigitalPhotos.net

Logbook Loans and Payday Loans have grown in popularity as a financial solution in recent years. You might think that they both serve the same purpose by providing cash in a hurry when you need it, sometimes within hours – but there are important differences between them. We’ve compared them in detail here, with a quick-view summary at the bottom of the page.

What’s the difference between a Payday Loan and a Logbook Loan?

A Payday Loan is a short-term, high interest loan from £50 to £2,000 that you borrow against your next or next few wage payments.

A Logbook Loan releases equity in a vehicle – a car or a van – of between £300 and £25,000 – and you can keep driving.

The cost of borrowing

Logbook Loans are secured against the value of your car whilst Payday Loans are given on the understanding that you promise to pay it back within an agreed time. This means the amount of risk for each lender is different, which has an impact upon the interest rates each loan provides. With Logbook Loans the risk to the lender is lower and the interest rates less than the sometimes astronomical rates applied to the riskier Payday Loans.

Wonga                  Payday Loan       5,853.00% (representative APR)

QuickQuid           Payday Loan       1,999.00% (representative APR)

Satsuma               Payday Loan       793.8.00% (representative APR)

Auto Advance   Logbook Loan    300.30% (representative APR)

It’s worth noting that because a Logbook Loan is borrowed against the equity in a vehicle, they are a source of borrowing for people with a less-than-sparkly credit rating, even those who have been bankrupt or have CCJs, with no high-risk charges.

Time to pay it back

As we’ve mentioned, the amount you are able to borrow with a Logbook Loan (be aware that Logbook Loan APRs vary widely, and some companies will charge up to around 500.00%). Payday Loans are designed to be used for short term borrowing, tiding you over usually until you next get paid and can repay the loan in whole or part.

A Logbook Loan is ideal for longer term borrowing, ideal to pay for larger items, unexpected household repairs, or even for business investment though they can be used for any reason you like.

Affordability and fairness

The repayments and fees with a Logbook Loan are intended to be affordable, and a reputable company will check that you have a steady income and can repay the loan. Providers like Auto Advance won’t charge additional fees for missed payments or administrative costs. Unlike some other loans, Logbook loans don’t include early repayment or settlement fees.

If you miss a payment or make it late, a Payday Loan lender will often charge a fee, often referred to as a default charge. These can cause a debt to escalate out of control, especially for people who are on a strict budget. Payday Loan providers have been publically criticised by banks and charities for lending to people who could not afford the repayments, and horror stories abound about these easy-to-access loans have become a financial nightmare for borrowers.

Summary of Logbook Loan benefits

  • Free up equity in an asset
  • Rates of interest are lower
  • You can raise more money
  • Spend it how you see fit
  • Take longer to pay back the loan
  • Application doesn’t show on your credit history
  • Poor credit ratings not assessed
  • Affordable monthly repayments
  • No additional or unexpected fees

When you’re thinking about raising money, make sure you choose the loan that suits your pocket. Understanding the differences between these types of loan will help you choose a better deal and will protect you against financial worry and debt.

If you do find yourself in the position where you are unable to keep up any repayment the loan company will sell the car on your behalf and use the sale funds to settle your debt. Anything left over once the loan has been settled will be given back to you.

If you do have money worries, the best advice is not necessarily to borrow more but to seek free debt advice from Step Change or the Money Advice Service.

Please note: the comparative interest rates used as examples were correct at time of publication.

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