Logbook loans are relatively new in the borrowing market and involve taking out a loan against the value of your car. If you look at the fine print, they’re technically a secured debt, however they don’t have the same level of security compared to the sort of finance agreement that’s available from your bank or a loan company.
This type of loan is normally used to borrow smaller amounts of money, but it carries a much higher risk than other debts. You may lose your car, your credit score will be affected, and all the while you still need to pay back the original loan amount, plus the interest and additional charges.
How do logbook loans work?
Put simply, you are taking out a loan against the value of your car. If you need to borrow money but have struck out elsewhere, you may be tempted use this option as a last resort.
‘Logbook’ is the simple term for a Vehicle Registration Certificate, also referred to as the V5C form. It’s this document you’ll hand over to the loan company in exchange for the money. In short, you have to hand over ownership of your car.
You can continue to use your vehicle once you have received the money and during the time you’re paying back the loan. You won’t be able to take out a logbook loan if you have any outstanding finance on your car, or if you’re not the registered owner.
The loan company will keep the logbook during your payment plan. Once the loan has been cleared, you’ll get your logbook back.
If you miss any payments, your car could be taken from you. In some cases, you will be made to sign a ‘bill of sale’ document, which means the loan company will then own the car.
This makes it very easy for them to repossess your car if they need to, which in turn is a very high risk to take, especially if you need your car for work.
What are the common causes of logbook loan debt?
It’s quite common for people to find it hard to pay back a logbook loan because they’re likely to be dealing with other money problems. This could even be the reason why they got a logbook loan in the first place.
We never recommend using a logbook loan to pay off other debts. They are normally very expensive, with interest rates going as high as 450%. Companies will also not usually run credit checks when applying for this type of loan, making it very attractive to those who come across it.
People usually turn to this type of loan as a last resort, but given the high costs and high risk, we don’t advise that you take one out, even if you have other money problems.
Consumer protection against logbook loan debt
Logbook loans rarely have the same customer security as other car finance options. Many have extra fees and charges built in for things like paying your agreement off early or late payments.
The loan provider is able to take action against you for any missed payments and can be known to call in bailiffs – sometimes without even having to apply to a court.
If you’re thinking about using a logbook loan as a way out of debt, you should talk to Creditfix first.
Call us now for immediate free debt help or fill in our short questionnaire to get started. We can start to work through your debt problems as soon as you contact us, and our advisors are trained to give you the best advice for your situation.