Why the Banning of Logbook Loans Could Do More Harm than Good

There has been plenty of talk in the in media lately that logbook loans might be banned, citing usurious interest rates and payment terms. Some even believe that it is wrong to require those taking out the loans to offer their cars as security. In reality, logbook loans are often the only kind of loans that many people have access to. For those with poor credit ratings, traditional loans are rarely an option, as most lenders are not willing to take the "risk".

Using the car as security alleviates some of the risk for the lender, allowing them to offer loans to more people. Terms for short-term loans are always more drastic than those for long-term loans, and because the lender still consider it risky to lend to someone with a poor credit score, the logbook loan ensures their investment will be repaid. This is how loans work, across the board. Banks and independent lenders weigh the risk of loaning money to a certain person against the possibility of returns and make their lending decisions. Logbook loans are some of the only loans available to people who have low credit, and are therefore regularly refused loans from other sources. Without these loans, some may not be able to get the money they need and finally improve their ratings.