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.
What is a logbook loan?
A logbook loan is a way of borrowing money that is secured against your vehicle.
Logbook loans are similar to car title loans, in that you hand over ownership of your vehicle (in the form of the bill of sale) to the logbook loan company until you have paid your debt back.
Logbook loans usually value up to £5,000, and are often far more expensive than loans from other high street lenders.
Logbook loan payments can come with interest of up to 300% over and above the amount you borrowed, and if you default on payments, it’s very easy for your car to be repossessed.
Logbook loans are available in England, Wales, and Northern Ireland, but are very uncommon in Scotland. In Scotland, you may be part of a similar arrangement, although it’s likely to be a hire purchase agreement.
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.
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.
What happens if you don't pay a logbook loan?
If you fail to make your logbook loan repayments, 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 will the logbook loan company do with my car?
Defaulting on your logbook loan agreement means your vehicle can be taken from you by the logbook loan company. Once the lender is in possession of your car, they will most likely sell the vehicle at auction.
The logbook lender does this to recover as much money as possible to make up for the debt you owe. If the value of your vehicle (or the price it gets at auction) isn’t enough to cover your whole debt, you’ll be expected to make up the difference.
You can treat this shortfall the same way as other non-priority types of debt, and pay the logbook lender back over time. In the unlikely event that they sell the vehicle and recover more money than you owe from the sale, the logbook lenders will be expected to pay you the difference.
Can I protect my vehicle from a logbook loan lender?
It’s very difficult to protect your car from a logbook loan company if you fall into arrears, as they hold ownership of your vehicle, and are able to reclaim it without the same level of due process that other lenders and creditors have to go through.
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.
Logbook loan companies are covered by a trade body, the Consumer Credit Trade Association, which has implemented codes of practice for logbook lenders in the past, but the fact remains that a log book loan is a largely unregulated form of credit, and can therefore be dangerous for consumers than unsecured debts and other non-priority debts.
Where can I get debt advice and more information on logbook loans?
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 advisers are trained to give you the best advice for your situation.
For free and impartial debt advice, and help dealing with logbook loans or other debts, call Creditfix today on 0800 0431 431.