Logbook Loans: What are They and How do They Work?
Logbook loans are secured against your vehicle, so the lender temporarily owns your vehicle until you repay the loan in full. These loans can be very expensive, which means alternative options may be more suitable. Read on to find out how they work.
If you’re exploring ways to borrow money, you may have come across something called a logbook loan. This is a type of short-term secured loan that uses your vehicle as security.
They are typically more expensive than other forms of lending and, as your vehicle is used as collateral, you risk the lender repossessing it if you can’t make all the payments. As a result, it’s always worth considering your other options before you think about getting a logbook loan.
Read on to find out more about how logbook loans work, the risks they carry and what alternative lending options you could consider instead.
What is a logbook loan?
A logbook loan is a loan that is secured against a type of vehicle, including cars, vans and motorcycles. They are similar to ‘title loans’ in the United States.
Logbook lenders can offer a loan worth up to a certain percentage of the value of your vehicle, which you would then repay over an agreed period.
Although car finance agreements can also be secured on a vehicle, logbook loans are different. Car finance allows you to buy a vehicle if you can’t afford, or don’t want to, buy one outright, while logbook loans allow you to borrow money using the value of the vehicle you already own.
Logbook loans normally come with very high interest rates, so they can be one of the most expensive ways to borrow.
» MORE: What is a secured loan?
How do logbook loans work?
When you take out a logbook loan, you transfer ownership of your vehicle to the lender. However, even though the lender becomes the legal owner, you can continue to drive your car as normal.
In some cases, you may need to give the lender your logbook (V5C), which proves you legally own the vehicle, as well as other supporting documents. But, even if you don’t physically hand over your vehicle’s logbook, the lender will become the temporary owner of your vehicle until you repay the loan.
To get a logbook loan, you’ll need to sign a loan agreement and a document called a ‘bill of sale’, which transfers ownership of the vehicle. As long as lenders register this bill with the High Court, they don’t need a court order to repossess your vehicle if you miss repayments (once they’ve issued you with a default notice and given you 14 days to make up the missed payments).
If they don’t register the bill, they won’t be allowed to repossess your vehicle unless they go to court.
You would need to repay the logbook loan as per the loan agreement. It’s important to check the repayment terms as, with some logbook loans, you can just pay off the interest in your monthly payments and then repay the amount you borrowed in one lump sum in the final payment. You would therefore need a plan to make sure you can afford to pay this sum.
Logbook loans are only available in England, Wales and Northern Ireland.
Logbook loans aren’t available in Scotland because it doesn’t recognise bills of sale as legally binding. You may see loans advertised as logbook loans in Scotland, but these will be hire purchase or conditional sale agreements rather than the kind of logbook loans you find elsewhere in the UK.
What if I miss any payments?
The lender is entitled to repossess your vehicle and sell it to get the money they are owed if you fail to repay the loan. You will need 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.
Who is eligible for a logbook loan?
You may be eligible for a logbook loan if:
- you are over 18 years old
- you live in England, Wales or Northern Ireland
- you own your vehicle outright, so you are named as the registered owner on your vehicle’s logbook (V5C)
- your vehicle is fully taxed and insured and has a valid MOT
When you apply for a loan, lenders will make sure you can afford repayments and do a credit check before deciding whether to approve your application. Because the loan is secured against your vehicle, minimising the risk to the lender, they may be willing to lend to you even if you have a poor credit score.
However, even if you are eligible for a logbook loan, you should always make sure you have explored other options and be aware of the risks that this type of loan can present.
Can you get a logbook loan if your car is on finance?
If your vehicle is on finance, you are not the legal owner so you won’t be in a position to use it as security for a logbook loan. You may be able to ask your finance provider if you can take out a logbook loan, but it may not grant permission and the logbook lender may not agree either.
You may stand a better chance of getting a logbook loan if your finance agreement is nearly complete and you don’t have much more left to pay.
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 car and the criteria of the lender. In general, 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 conduct their own independent valuation of your vehicle.
You should always check the payment terms of a logbook loan. Some agreements may be structured in a way that means you make smaller interest payments throughout the term, then pay off the outstanding capital with a larger final payment.
What are the risks of logbook loans?
Logbook loans can be risky and there are other alternatives to borrowing money which may be less risky and potentially cost you less. Below are some of their disadvantages:
- They can be very expensive. The annual percentage rate (APR) of logbook loans can be 400% or higher, making them one of the most expensive forms of borrowing.
- You could lose your vehicle if you fail to keep up with repayments. And if they have registered the bill of sale with the High Court, lenders are entitled to repossess your vehicle without going to court.
- You may need to make weekly, rather than monthly, payments.
If you do choose to take out a logbook loan, make sure the lender is regulated by the Financial Conduct Authority (FCA) and that you’re aware of all the terms of the agreement.
You should also try to find a lender that is a member of the Consumer Credit Trade Association (CCTA). The CCTA has a code of conduct, which is designed to help consumers, so members need to observe certain rules about payments, repossessions, and more.
For example, lenders cannot repossess your vehicle unless you owe at least the last two monthly payments or the last four weekly payments (depending on how you pay) and you haven’t come up with an alternative payment plan.
If lenders do repossess your vehicle, the CCTA states that they should try not 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 at least five days.
Alternatives to logbook loans
Logbook loans could seem an appealing option if you need money quickly, especially if you have a poor credit score and are struggling to get finance elsewhere. However, there are potentially alternative ways of borrowing including:
- Personal loan. These loans are unsecured and will typically have lower interest rates than logbook loans, although this will depend on your credit score. If you have a bad credit score, there are lenders that specialise in offering loans to people with less than perfect credit histories. However, bad credit loans will also come with higher interest rates.
- Credit card. If you need to borrow some money, you may consider using your existing credit card or applying for a new one. Depending on the type of credit card you have and the interest you pay, this is potentially a cheaper option, especially if you shop around for 0% deals. It’s a good idea to not just pay the minimum repayment each month and always make repayments on time. It is also important to remember that 0% interest credit cards can be hard to get if you have a less than perfect credit score.
- Overdraft. If you have an overdraft on your current account and you only need to borrow a small sum of money for a short period, this might be a better option than a logbook loan. However, be aware of the charges that could apply and make sure you pay it off before the interest fees pile up.
- Borrow from family and friends. Whether this is a viable option depends on your circumstances and your relationship with family members and friends. Borrowing money from people you know can cause complications and tensions, so make sure both parties agree on repayment schedules and other terms beforehand. To avoid any disputes in the future, it makes sense to write down the loan amount and repayment schedule, and both sign and date it.
If you are struggling with your finances and any debts you may have accumulated, you should seek professional advice. There are various debt charities, which can offer free support and guidance to help you stabilise and improve your financial situation.
» MORE: How to get debt help
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Rhiannon is a financial writer for NerdWallet, with a particular interest in personal finance and insurance guides for consumers. Read more