What To Do In Case Of Logbook Loan Default: Making The Best Of A Bad Situation

What To Do In Case Of Logbook Loan Default: Making The Best Of A Bad Situation

Logbook loans are a popular financing option in Kenya. They are used to boost businesses, finance vehicles and to tackle personal emergencies. However, customers default on loans even if they have the best intentions. This article will address mistakes people make as well as the best path to follow.

Common Mistakes Made When Defaulting on a Logbook Loan

  1. Ignoring Communication from the Lender
    Some borrowers may ignore calls, messages, or letters from the lender when they start experiencing financial difficulties. Avoiding communication can exacerbate the situation and may lead to legal action.
  2. Failing to Negotiate with the Lender
    Many borrowers fail to communicate with the lender about their financial challenges and explore options for restructuring the loan or negotiating new repayment terms. Open communication can sometimes lead to more favourable arrangements for both parties.
  3. Not Understanding the Terms of the Loan
    Some borrowers enter into logbook loan agreements without fully understanding the terms and conditions, including the implications of defaulting. It's essential to carefully review the loan agreement and seek clarification on any unclear terms before signing.
  4. Delaying Payments or Ignoring Deadlines
    Delaying loan payments or ignoring repayment deadlines can result in additional penalties, fees, and accrued interest. It's crucial to prioritise loan payments to avoid accumulating more debt.
  5. Using the Vehicle as Security for Multiple Loans
    Some borrowers may use the same vehicle as security for multiple loans from different lenders, increasing the risk of default and potential repossession of the vehicle.
  6. Not Seeking Legal Advice
    When facing difficulties with loan repayment, borrowers may fail to seek legal advice or assistance. Legal experts can provide guidance on rights, responsibilities, and options for resolving debt issues.
  7. Underestimating the Consequences of Default
    Defaulting on a logbook loan can lead to repossession of the vehicle, damage to credit scores, legal action, and additional financial stress. It's essential for borrowers to understand the potential consequences and take proactive steps
    to address financial challenges.

What to do when you can’t pay your logbook loan

  1. Accept the situation as fast as you can
    This is the biggest roadblock to sorting out the problem. Logbook loans have high interest rates and penalties. The longer one goes without paying the loan, the worse the situation is. You have to be in the right state of mind to consider what will happen if you don’t pay your loan and think through the options.
  2. Negotiate with your lender
    It is always better to approach your lender before the problem of loan default arises or in the early stages. As mentioned earlier, communication is essential. The lender is more sympathetic to working with customers who are honest and proactive when searching for a solution.

    Loan rescheduling can be done. This is when the term of the loan is
    extended for 6-12 months. This can allow the customer to make lower monthly repayments while finding an option to improve his finances. The only disadvantage is that the accumulated interest paid to the lender will be high.

    If the default is due to a medical emergency or accident, make sure that you provide hospital receipts, doctors’ notes etc. You can negotiate for a moratorium before you pay the loan.

    It’s likely that you will conduct the negotiations in person or on the phone but make sure that you lay out your requests in writing via email so that there is a paper trail of events.
  3. Take the vehicle to the lender’s yard
    If negotiations have failed or if the grace period and deadlines given by the lender are near and measures taken to improve cash-flows haven’t worked, drive the vehicle to the yard. If this is not done, lenders send auctioneers to repossess the car.

    Auctioneers can be quite ruthless when carrying out their duties. Their fees are quite high and are usually passed on to the customer. If auctioneers are impeded in their work by customers hiding vehicles or refusing to surrender them, their invoices balloon. It’s best to avoid the situation entirely by surrendering the vehicle.
  4. Selling the vehicle
    Once the vehicle is ready for sale, insist on a valuation report so that a fair price can be accepted for the vehicle. Lenders usually sell repossessed vehicles via public auction. This has mixed results but there are other options available. You can register your vehicle on an online platform such as Jiji. However, consider Eezy Cars. They are cut above the other online car sale platforms.

    Apart from the specifics of the vehicle, time is the biggest factor when selling a vehicle. This is due to the high interest rates and penalties as well as parking fees. In addition, a vehicle is a depreciating asset so its value goes down as time goes by.

    The desired outcomes of this process are decreased stress and anxiety that come from dealing with lenders and auctioneers and most importantly, a pay-off amount that will be paid to the customer after all the loan costs are paid. Hopefully, one does not walk away empty handed.

Overall, timely communication, understanding loan terms, seeking assistance when needed, and prioritising loan payments can help borrowers navigate challenges and avoid the pitfalls of defaulting on logbook loans in Kenya.

About Kifedha

Whether it's for working capital, medical emergencies, school fees, or business expansion, Kifedha remains a trusted partner for individuals seeking logbook loans since 2016. With loan amounts ranging from KES 50,000 to 1,000,000, based on vehicle make and model and client eligibility, Kifedha continues to empower dreams and businesses.

With branches strategically located in Ongata Rongai, Kitengela, Ngara, Kiambu, and Thika, Kifedha serves customers across Nairobi, Kiambu, Machakos, and Kajiado Counties.

For those seeking swift financial solutions, Kifedha Limited is just a call away. Contact us through our contact form, call us on +254791573231 or visit one of our branches to explore financial opportunities.