Whilst exploring different types of loans and credit, you may have stumbled upon v5 loans during your search. These types of loans offer an alternative for payday loans and personal loans, for those with bad credit.
If you don't know much about v5 loans and you're looking to learn more - we're here to help! In this article, we'll take a closer look at the pro's and con's of v5 loans, to help you decide whether this borrowing method is the right choice for you.
What is a v5 loan?
For those who are new to v5 loans, this section will explain what they are and how they're used. In summary, a v5 loan is a loan that is secured against any vehicle that you own, these are also referred to as 'logbook loans'. If you cannot keep up with your repayments you risk losing the secured vehicle, therefore the vehicle you choose must be free of finance, or nearly free of finance and it must also be registered in your name.
These differ from unsecured loans because with loans that are not secured, your lender cannot take any of your assets if you don't keep up with repayments. As well as this, you'll be given a set amount of time to repay your loan, and you'll need to make regular payments in instalments until the total debt is paid off.
There are other alternative secured loans on the market, such as a mortgages, however, these are normally secured against assets such as your house, therefore they are considered more of a risk.
Similarly to other loan types, you can borrow anything from a few hundred pounds to over £3000, but the amount you're allowed to borrow will vary from lender to lender. Like other personal loans, the money you want to borrow is transferred straight to your bank account once your application is accepted, and the you can spend the money as you wish.
In contrast to unsecured loans, you may find that v5 loans have lower interest rates. This is because lenders can recover your vehicle if you cannot keep up with your payments, therefore this option is seen as less of a risk than unsecured loans. Despite this, it's important to note that this is still considered an expensive method of borrowing as interest rates for v5 loans are significantly higher than that of credit cards and long-term loans.
Read on to learn more about v5 loans: important points to consider.
V5 loans: Important points to consider
There are a few key things that you should could consider before deciding to go for a v5 loan. For example, even though in this situation a car is an asset for bad credit, this doesn't mean that loan companies can't and won't take other assets if you can't keep up with your loan repayments.
If worst comes to worst and you continually fail to make payments, your lender may decide to take you to court, where the judge will order you to pay the rest of the debt. Although this is a rare occurrence, it's important to keep this in mind as you can end up in an extremely difficult situation if you cannot keep up with your repayments or worse yet, you stop paying altogether.
As with any significant decisions, you'll need to weigh up the pro's and the risks of the situation before making commitments. Below, we've done the hard work for you so that you can see if v5 loans are the right financial solution for you.
The pro's and con's of v5 loans
There are several advantages and disadvantages of obtaining one of these loans. Some of the main pro's include:
- Fast payment - Many lenders can send the money to your account within a few days of your application being accepted.
- No credit check - If you've got a poor credit history, you can still get a v5 loan as there are no credit checks involved.
- You can access larger loans - As your vehicle is used as collateral, you may be able to obtain larger amounts of money than you would with unsecured loans.
Whereas, there are also significant disadvantages to consider, including:
- High interest rates - The high interest rates associated with these loans means that this is a very costly method of borrowing money. In some cases, v5 loans can come with an APR of 400%, so that's why it's important to shop around and find the best deal.
- Repossession - By opting for a logbook loan, you risk repossession of your car if you cannot keep up with payments, however, this is often used as a last resort option if you can't clear the debt.
- Debt trap - If you're using a logbook loan to pay off other debts and credit cards, you risk falling into a debt trap that can be extremely difficult to get out of. Before getting additional loans, try and pay off your existing debts with your savings to avoid getting into a difficult situation.
What to do if you've got bad credit
As mentioned earlier, you don't need a perfect credit score to score a v5 loan. These simple steps will help you to get the best logbook loan, no matter what your financial situation is:
- Shop around for the best deal - Browse the internet and different comparison sites to compare interest rates and find the best interest rates for the loan you require.
- Decide how much money you need - It's best not to apply for more funds simply because you can. Instead, only apply for the amount of money that you really need. This will help you to stay on top of your payments and avoid getting into too much debt.
- Apply for a loan! - Once you've found the right lender at the right cost, it's time to apply for your loan and get your funds!