Logbook loans are a type of short-term secured loan that uses your vehicle as security but allows you to carry on using it at the same time.
Logbook loans are typically more expensive than other forms of lending and, as your vehicle is used as collateral, there is a risk it could be taken by your lender if you fail to make the loan repayments you should. As a result, it’s always worth considering the alternatives if you’re thinking of taking out a logbook loan.
Read on to find out more about how logbook loans work, the risks they carry and other lending options you could consider instead.
What is a logbook loan?
A logbook loan is a loan that is secured against a vehicle that you own. You can get logbook loans secured on cars and vans, as well as motorbike logbook loans. They are similar to ‘title loans’ in the United States.
Logbook lenders look at how much your vehicle is worth when deciding how much you might be allowed to borrow. The maximum logbook loan you’re offered will be a certain percentage of the value of your vehicle. Repayment periods tend to be relatively short and, in most cases, no longer than 78 weeks. Loans can be approved in anything from a few hours to a few days.
Although car finance agreements can also be secured on a vehicle, they work differently to logbook loans. Car finance provides a way to buy a vehicle, while a logbook loan allows you to borrow money using the value of a vehicle that is already yours.
» MORE: What is a secured loan?
How do logbook loans work?
When taking out a logbook loan, the ownership of your vehicle transfers to the lender. While the lender will be the legal owner until you’ve paid back the loan, you can continue to drive your vehicle as normal while the repayments are being made.
Logbook lenders will usually require you to hand over your vehicle logbook or V5C, which proves you’re the registered keeper of the vehicle.
Logbook loans bill of sale
To get a logbook loan, you’ll need to sign a loan agreement and a document called a ‘bill of sale’, which temporarily transfers ownership of the vehicle to the lender. If a lender registers this bill with the High Court, it is entitled to repossess your vehicle without seeking court approval if the need should arise.
If the bill of sale isn’t registered, a lender can’t repossess your vehicle unless they go to court.
Can you get a logbook loan in Scotland?
Logbook loans are available in England, Wales and Northern Ireland, but not in Scotland. This is because Scotland doesn’t recognise bills of sale as legally binding. While you may find loans advertised as logbook loans in Scotland, these will be hire purchase or conditional sale agreements which are regulated by the Consumer Credit Act and so could offer borrowers more protection than logbook loans taken elsewhere in the UK.
If you are taking out a logbook loan anywhere in the UK, always check carefully how it works and the protection on offer.
Are logbook loans expensive?
Logbook loan interest rates tend to be much higher than on most other types of loan. There might be fees you need to pay too, including if you want to access the money fast. Additional charges might also be made if you default on your payments or your vehicle is repossessed.
The high cost of logbook loans means they should always be approached with caution and will rarely be a good borrowing option. You should always explore other alternatives first, including unsecured loans that don’t require security, and other types of secured loan.
How much can you borrow with a logbook loan?
The amount you can borrow through a logbook loan will depend on the value of your vehicle and the criteria of the lender. Typically, logbook lenders will offer loans worth between £500 and £50,000, although you will only be able to borrow up to a certain amount of your vehicle’s total value.
Lenders may require an independent valuation of your vehicle.
Paying back logbook loans
A typical logbook loan might need to be repaid within 78 weeks of taking out the loan. However, some might have a shorter term and others much longer. Whatever the term set, you should be legally allowed to pay off a logbook loan early if you want – but be aware there may be charges for doing so.
It’s vital you understand the payment terms of a logbook loan. You might need to make repayments weekly or monthly. Some agreements may be structured in a way that means you make smaller interest payments throughout the term, but must then pay off the outstanding capital with a larger final payment. Having a plan as to how you’ll pay off this final amount is a must.
What happens if I can’t repay a logbook loan?
In the first instance, if you fail to make a repayment on a logbook loan a lender will issue a default notice that allows you 14 days to make the payment that you missed. Don’t ignore this notice or the fact you’re struggling with your debts – talk to the lender and seek debt help and advice.
If repayments continue to go unpaid, the lender is entitled to repossess your vehicle and sell it to get the money it is owed. It won’t need to approach the courts first if a bill of sale has been registered.
You are also liable to make up the shortfall if the sale of the vehicle doesn’t clear the debt. If the car sells for more than you owe, the lender has to pay you back the difference.
» MORE: How to get out of debt
Can I sell my car if I have a logbook loan?
You’re not able to sell a vehicle if you have a logbook loan secured against it. That’s because if you’ve taken out a logbook loan on a vehicle, it is owned by the lender until you’ve paid the loan back.
How to get a logbook loan
You can find logbook loans online or sometimes on the high street. If you are considering approaching a logbook lender, check that they are regulated by the Financial Conduct Authority (FCA).
Ideally, a logbook lender will also be a member of the Consumer Credit Trade Association (CCTA), a trade body that requires that lenders must adhere to certain rules relating to how logbook loan borrowers are treated.
Who is eligible for a logbook loan?
This might vary between lenders, but generally you may be eligible for a logbook loan if:
- you are over 18 years old
- you live in England, Wales or Northern Ireland
- you are the legal owner of your vehicle and named as such on your vehicle’s logbook (V5C)
- your vehicle is taxed, fully comprehensively insured, and has a valid MOT
When you apply for a logbook loan, lenders will also want to see proof that you can afford the repayments you’ll need to make.
Can you get a logbook loan on benefits?
If you can demonstrate that your repayments are affordable, you might be able to get a logbook loan while on benefits. However, you should always explore all the potential alternatives first, including budgeting loans and advances from the government.
Crucially, you don’t want to overstretch yourself financially, particularly as you could lose your vehicle to the lender if you fail to keep up with your repayments.
» MORE: Loans for people on benefits
Do you need a credit check for a logbook loan?
Some lenders might carry out a credit check before deciding whether to approve your application for a logbook loan, but not all. Many will simply make an assessment based on whether you meet their lending criteria and can prove you’re able to afford the repayments.
Can I get a logbook loan with bad credit?
As many logbook lenders don’t perform credit checks on potential borrowers, it is possible to get a logbook loan with a bad credit score. Because the loan is secured against your vehicle, logbook lenders know they have the option of repossession if you don’t pay. For this reason, they might be willing to lend to borrowers that might otherwise be turned away as too great a risk.
However, even if you’re eligible for a logbook loan with bad credit, it might not be the best option for you. Always explore other options first and be aware of the risks that this type of loan can present.
Can you get a logbook loan on a financed car?
You might be able to get a logbook loan if your finance agreement is nearly complete and you don’t have much left to pay, but you would need to ask your finance provider for permission. The logbook lender would also need to be happy to proceed.
But more importantly, from your own perspective, it’s unlikely a logbook loan would be a suitable solution if you still have an existing finance arrangement to settle on your vehicle.
Are logbook loans a good idea?
Logbook loans may appear to offer a viable borrowing option if you need a loan relatively fast or have bad credit. However, generally, the disadvantages of logbook loans will outweigh the advantages. They are widely considered as high risk, and there are alternative ways of borrowing money which could potentially cost you much less. Listed below are the main drawbacks of logbook loans:
- They can be very expensive, usually having high annual percentage rates (APRs), which can typically be as much as 400% or higher, and potentially charging extra fees.
- You risk losing your vehicle if you fail to keep up with repayments.
- Some lenders don’t allow you to set up a direct debit, putting the onus firmly on you to remember to make payments when you should.
- There is less protection as a consumer than under other loan arrangements.
Are logbook loans safe?
Most of the guidance from the FCA and government-backed free guidance service MoneyHelper suggests that logbook loans are generally best avoided due to their high cost and the risk of your vehicle being repossessed if you can’t make the repayments.
If you have little alternative but to take out a logbook loan, as a minimum make sure the lenders you are looking at are regulated by the FCA and that you fully understand all the terms of any agreement.
Also try to find a lender that is a member of the Consumer Credit Trade Association (CCTA) and so must follow the trade body’s code of practice. As a CCTA member, a lender must abide by certain rules in relation to the treatment of logbook loan borrowers. For example, under the CCTA code of practice, a lender cannot repossess your vehicle unless you owe the equivalent of at least two monthly payments if you pay monthly, or four weekly payments if you pay weekly.
And if your vehicle is repossessed, CCTA code suggests a lender shouldn’t try to sell it for at least 14 days, to give consumers the opportunity to get it back. Lenders that do not belong to the CCTA only need to wait five days.
Alternatives to logbook loans
Such are the risks involved with logbook loans, you should always check to see if there is any other way you could borrow first.
Personal loans are unsecured, which means you don’t need to put an asset forward as security. It’s usually easier to get a personal loan with good credit, but if your credit is poor there are lenders that specialise in offering loans for bad credit too.
Credit union loans
If you’re a member of a credit union, or willing to join, these not-for-profit organisations offer loans at capped interest rates. In England, Scotland and Wales, the maximum interest rate that can be charged on a credit union loan is 42.6% APR – or 3% a month – while in Northern Ireland, the most you’ll pay is 12.68% APR, or 1% a month.
» MORE: Credit union loans explained
A credit card
With a 0% purchase credit card you have a certain period of time before interest starts to be applied to the spending you make on the card. However, you’ll still need to make a minimum repayment each month, and in reality should aim to pay back more – that’s because, to avoid high interest rates, your debt will need to be cleared before the interest-free period comes to an end.
Use your overdraft
If you have an overdraft on your current account, this might provide you with a way to borrow a small sum of money for a short period of time. Importantly, you should find out the interest and charges that could apply and be sure to pay it off before they start to grow.
Borrow from family and friends
Borrowing money from people you know can offer a quick and convenient solution, but whether it’s a viable option will depend on your circumstances and your relationship with family members and friends. Trying to avoid future disputes is key, and why all parties should formally agree and put in writing repayment schedules and other terms of the loan before money changes hands.
» MORE: Lending money to family and friends
A budgeting loan or advance
If you’ve got essential expenses to pay and are on certain benefits, you might qualify for an interest-free loan from the government. A budgeting advance might be available if you receive Universal Credit, or you could potentially get a budgeting loan if you receive Income-based Jobseeker’s Allowance, Income-related Employment and Support Allowance, Income Support or Pension Credit.
If you’re experiencing financial difficulties while waiting for your first Universal Credit payment, you might also be able to get a payment early – called a Universal Credit advance.
» MORE: Budgeting loans and advances
Image source: Getty Images