Logbook loans are loans secured on your vehicle, so the lender owns your vehicle until you pay the loan back. You can keep on using your vehicle as long as you repay the loan. However, they are expensive and risky and you should avoid them if you can.
How do logbook loans work?
Logbook loans are available on the high street and on the internet.
You can normally borrow between £500 and £50,000, depending on how much your car is worth, although you may only be allowed to borrow up to half of your car’s value.
When you take out a logbook loan you will be asked to hand over your vehicle’s logbook or vehicle registration document.
These are the documents that prove you are the registered keeper of the vehicle.
Taking out a logbook loan in England, Wales or Northern Ireland
If you live in England, Wales or Northern Ireland, you’ll also have to sign a credit agreement and a form called a ‘bill of sale’.
This means the lender now temporarily owns your vehicle but you are still able to use it so long as you meet all loan repayments.
The law only recognises a bill of sale if the lender registers it with the High Court. If it’s not registered, the lender must get a court’s approval to repossess your vehicle.
You should check if the bill of sale is registered.
Bills of sale are not used in Scotland
Taking out a logbook loan in Scotland
In Scotland, ‘bills of sale’ cannot be used as security and are not legally binding.
Lenders in Scotland are therefore likely to be operating under different credit arrangements.
If the logbook loan is a ‘hire-purchase agreement’ or a ‘conditional sale’, your consumer rights and protection under the Consumer Credit Act 1974 will apply.
Getting your loan
Normally you are paid the loan by cheque, which takes several days to clear.
Some logbook loan companies offer a quick cash service, but they may charge fees of up to 4% of the loan for this.
Paying the loan back
Most logbook loans run up to 78 weeks, although you are able to pay it off earlier.
With some agreements, you may only be repaying the interest charges until the last month of your contract.
In the final month, you will be expected to repay the amount of money you originally borrowed.
You must make sure you understand how the agreement operates and that you can afford the repayments.
How much does a logbook loan cost?
Interest charges are around 400% APR or higher.
Interest is charged on the loan amount each week.
So if you borrowed £1,500 and paid £55 a week for 78 weeks, you would repay over £4,250 in total.
That means you would have paid over £2,750 in interest in order to borrow £1,500.
Cons of logbook loans
- You could lose your vehicle if you can’t make the repayments to the loan company.
- You don’t have the same consumer protection as with a hire purchase agreement.
- You need to be the legal owner of a vehicle with a value over £500 with no finance outstanding on it.
- The interest is much more expensive than unsecured loans from mainstream lenders, so you could end up deeper in debt as you struggle to pay back what you owe.
What to think about before taking out a logbook loan
- The annual percentage rate (APR) can be very high, so it is best to pay it off as quickly as possible.
- There may be extra early repayment charges if you repay more than £8,000 in any 12-month period.
- Logbook loan lenders may ask for weekly payments and some do not take Direct Debit so it can be difficult to keep on top of how much you owe.
- If you’re unsure about how much you’ve paid back, ask for a statement of how much you owe (called a ‘statement of account’) which the lender must give you.
- How much you can borrow depends on the value of your vehicle. A reputable lender will ask you to get it independently valued.
- Even if the vehicle has existing finance against it, you may still be able to get a logbook loan, but generally only if your existing loan agreement is coming to an end and the outstanding amount is low. In all cases you need to get permission from your existing lender.
If you can’t pay back your logbook loan
Logbook loan lenders have the right to employ bailiffs to seize your car or motorbike if you don’t meet repayments, although most will not sell your vehicle until you have fallen behind with several repayments.
The logbook loan lender would not need to go to court to repossess your car.
If your vehicle is sold
If the amount it is sold for is less than the amount you owe, you will still be responsible for paying the shortfall.
A logbook loan company can take you to court to get this money back.
Alternatives to logbook loans
Logbook loans can seem tempting if you need cash fast and have a poor credit rating, but there are always alternatives. We do not recommend using logbook loans.
If you do, check that the lender is a member of a trade body and complies with the code of practice, specifically on logbook loans.
If you have a low income and you need to borrow a small amount for a short time, you should consider contacting a credit union. However, you may first have to open a savings account with them.
Help from the government
Ensure you are getting all of the benefits you are entitled to.
If you desperately need to borrow money, you may be able to apply for an interest-free Budgeting Loan from the Social Fund.
Alternatively, other help may be available from your local authority in England, or the Scottish and Welsh governments.
Getting help with debt
Needing to use a logbook lender may be a sign that you have some debt issues. Many organisations offer free debt advice, such as Citizens Advice and StepChange Debt Charity, and may be able to help you.