How to Get a Logbook Loan in Kenya: The Pros, Cons, and Calculating the True Cost of Debt

 

I. Introduction: Asset Finance in Kenya 

A logbook loan is a type of secured credit where your vehicle's logbook is used as collateral. It is a common source of quick capital for Kenyan small business owners and individuals needing emergency funds, as it is generally faster and requires less bureaucracy than a conventional bank loan.

While convenient, it is one of the riskiest forms of debt because failure to repay means your primary asset—your car—can be legally seized and auctioned. This guide walks through the requirements, the calculation of the true cost of debt, and the critical risks you must be aware of before signing the dotted line.

II. How a Logbook Loan Works 

A. The Process:

1. Application: You apply with the lender (Bank, Sacco, or specialized Credit Firm) and provide documents.

2. Valuation: The lender hires an independent valuer to assess the car's market price. Loans are typically granted up to 50% to 70% of the car's current market value.

3. Logbook Handover: If approved, you sign the loan agreement, and the logbook is transferred into the joint names of you and the lender via the NTSA portal, which places a Caveat on the logbook. This prevents you from selling the car.

4. Disbursement: The loan amount is disbursed to your account.

5. Repayment & Clearance: Once the loan is fully repaid, the lender issues a release letter to NTSA, and the Caveat is lifted, returning the logbook fully to your name.

B. The Requirements:

• Original National ID and KRA PIN Certificate.

• Original Logbook (must be in your name).

• Recent Bank Statements (3-6 months) or Business Registration documents.

• Comprehensive Car Insurance (often required by the lender).

• Duly filled loan application form.

III. The True Cost: Interest Rates and Fees 

Logbook loans are typically priced higher than secured bank loans because of the higher risk. Interest is the main component of the cost, but hidden fees can inflate the total amount paid.

1. Interest Rate

• Range: Typically 2.5% to 5% per month (compounding to $30\%$ to $60\%$ annual percentage rate, or APR). Rates are higher for older or lower-value vehicles.

• Calculation: For a loan of KES 500,000 at $3\%$ monthly interest for 12 months, you would pay over KES 90,000 in interest alone, making the total repayment around KES 590,000. Use a loan calculator to factor in compounding interest over the term.

2. Valuation and Processing Fees

• Lenders will charge a one-time fee for the valuation and loan processing, often between 1% and 3% of the principal amount. This is paid upfront or deducted from the loan.

3. Insurance Costs

• Many lenders require you to take out a credit life insurance policy (to cover the debt if you pass away) and demand that the car has Comprehensive Insurance coverage. These costs are often bundled into the loan, increasing your overall debt burden.

IV. The Major Risk: Repossession and Auction 

The greatest danger of a logbook loan is repossession, which occurs if you default on the repayment schedule.

• The Default Trigger: Missing even one payment can trigger the repossession process.

• The Process: The lender is legally entitled to seize the vehicle. Once seized, you have a limited window (usually 21 days) to clear the entire outstanding balance, plus all recovery costs (tow truck, storage, legal fees).

• The Auction Loss: If you fail to pay, the car is sold at a public auction. Crucially, auction prices are often far below market value. If the auction price does not cover the loan balance and all associated costs, you are legally liable to pay the remaining debt balance, even though you have lost your car.

Risk Mitigation: Only take out a logbook loan if you have a reliable, proven income stream that can comfortably cover the high monthly repayment. Do not take out a loan against a car you cannot afford to lose.