It is fairly common knowledge that the short term loan industry has been undergoing changes recently. The Financial Conduct Authority has taken control of regulating businesses that operate in the market and so any company that wants to trade needs to be authorised.
This impacts one of the largest segments of the market which is logbook loans or V5 loans. If you aren’t clear on this type of loan it is short term finance that can be raised against your car. The higher the trade value of your car and the more income you have, the larger the loan you are able to take out will be.
Without regulation the market became unable to police itself, companies have been able to mislead customers into taking out loans that they thought were cheaper than they actually were whilst at the same time having hidden charges if payments aren’t met on time.
Repossessing too easily
One of the worst practices in the market has been the repossessing of cars very quickly after payments were defaulted by the borrower. It has been too easy for lenders to not assess the income of borrowers properly when they are making applications and therefore lend to easily. This has caused a number of complaints from various charities and organisations such as Citizens Advice and Step Change.
There are campaigns calling for the ability of companies to repossess a car to be curbed so it is not as easy. Second hand car buyers can unwittingly buy a car has that a logbook loan attached to it. The logbook loan company is then within the law to repossess the car, leaving the vehicle purchaser very much out of pocket.
These practices combined together have meant that the industry hasn’t been seen in a good light by the media and some parts of the public. The fact is however that the number of logbook loans being taken out are going up rapidly, so consumers have not been put off as much as might have been thought.
As the CEO of a leading Payday loans company says in this video, people will always want short term loans, even if campaigners say otherwise.
It is an interesting discussion and difficult to know what the answer is. Is the “loud minority” right that short term loans should be banned or severely restricted or should people be allowed to make the decision for themselves about whether they can take out a loan with a high interest rate?