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, logbook loans 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 some firms will only lend up to half of your car’s value.
When you take out a logbook loan, you’ll usually 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.
But even if you don’t, you’re still handing over ownership of the car until the loan is repaid.
Taking out a logbook loan in England, Wales or Northern Ireland
Logbook loans are used only in England, Wales and Northern Ireland.
They are not available in Scotland – if you’re offered a loan there, it’s likely to be a hire-purchase or a conditional sale, so check carefully what is involved and how it works.
With a logbook loan, in addition to signing a credit agreement, there will be a separate form called a ‘bill of sale’.
This means the lender now temporarily owns your vehicle but you’re 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 could check if a bill of sale is registered by making a written application to the Royal Courts of Justice in London.
There is usually a fee to pay.
Getting your loan
Most firms now use electronic payments to transfer the money into your account.
Some logbook loan companies offer a quick cash service, but they might charge fees of up to 4% of the loan for this.
Paying the loan back
Most logbook loans run up to 78 weeks, although by law you’re entitled to pay it off earlier if you want (and if you can afford to do so).
With some agreements, you might 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?
Typical Annual Percentage Rates (APRs) are 400% or higher, so this is an expensive form of credit.
For example, 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 protections as with a hire purchase agreement.
- You need to be the legal owner of the vehicle, usually with a value over £500 and with no finance outstanding on it.
- The interest is much more expensive than unsecured loans from mainstream lenders, so you could struggle to pay back what you owe.
What to think about before taking out a logbook loan
- The APR can be very high, so it is best to pay it off as quickly as possible.
- There might be extra charges on early repayment if you repay more than £8,000 in any 12-month period.
- Logbook loan lenders might 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 not sure 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 might 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 (and you’ll need to get permission from your existing lender first).
If you can’t pay back your logbook loan
Logbook loan lenders have the right to employ bailiffs to seize your vehicle if you don’t meet repayments.
Although most won’t do so (or won’t sell it) until you have fallen behind with several repayments.
By law, they must send you a default notice first, giving you 14 days to respond.
It’s a good idea to get free debt advice at this point, to see what your options are. Don’t just ignore the problem.
The logbook loan lender would not need to go to court to repossess your car, assuming the bill of sale has been registered.
If your vehicle is sold
If the amount it is sold for is less than the amount you owe, you’ll still be liable to pay 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.
You should avoid using a logbook loan.
If you do take one out, check that the lender is a member of a trade body and it complies with a 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 might first have to open a savings account with them.
Help from the government
Ensure you are getting all the benefits you’re entitled to.
If you are getting certain benefits, you might be able to apply for an interest-free Budgeting Loan from the Social Fund.
Alternatively, other help might be available from your local authority in England, or the Scottish and Welsh governments.
Getting help with debt
Needing to use a logbook lender might be a sign that you have some debt issues.
Speak to a free debt adviser, who might be able to help you.
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