Are you considering taking out a logbook loan but have concerns about this type of borrowing? You might even be wondering are logbook loans safe?
So long as you select a reputable lender, understand the terms of your loan agreement and keep up with your repayments, this type of borrowing should be perfectly safe.
Yet when it comes to matters of personal finance, you can never be too careful. So in this article Cashlady explores whether logbook loans are safe and what you can do to protect yourself if you decide to proceed with one.
The risks associated with a logbook loan
You could lose your vehicle
The most obvious risk that comes with taking out a logbook loan is that you could potentially lose your vehicle.
As a secured loan that uses your car, van or motorcycle as collateral, falling behind with repayments can have consequences. That is, the lender may sell your vehicle to recoup the money that you owe them.
Will your car be repossessed?
While the possibility of losing your vehicle is serious, there is a transparent legal process your loan provider must go through. Particularly before they have the authority to take your take and sell your property.
By understanding this process and your rights under the logbook loan, you will be much better protected should the worst happen and you fail to make your repayments.
If you do fall behind with your repayments then you will be given time to bring your payments up to date before the vehicle is seized.
What is a Bill of Sale?
If you are in England, Wales or Northern Ireland when you take out a logbook loan then you are required to sign a Bill of Sale.
This is a piece of legislation dating back to the Victorian period. It gives the lender temporary ownership of your vehicle for the duration of the loan.
It also allows you to keep the vehicle safely in your possession, so long as you keep up with the repayments.
If the lender registers your Bill of Sale at the High Court in London then it will appear on a public register. It means they are not required to obtain a court order to repossess your vehicle if you fail to repay your loan.
Not registering it with the High Court means they are required to seek a court order first. So you should always check whether your loan provider has registered your Bill of Sale.
What are the risks with a Bill of Sale?
Consumer and legal groups have expressed concerns about the use of Bills of Sale for logbook loans, claiming they are too complex. Also that they do not offer enough protection for the borrower and that third parties are not protected.
There have been cases where a third party has bought a second-hand car, unaware it was under the temporary ownership of a logbook loan provider. The original owner has defaulted on their loan and against the terms of the credit agreement, has sold their car on.
The new buyer has bought the car in good faith, yet has had it seized from them by the loan provider, who according to the Bill of Sale, is the rightful owner.
What a Bill of Sale means for you
If you decide to take out a logbook loan, then unless you are in Scotland, you will be required to sign a Bill of Sale.
While it may be subject to criticism from certain groups, this part of taking out a logbook loan is unavoidable and safe. Make yourself familiar with it, read all of your paperwork carefully and check whether the lender registers yours with the High Court.
In Scotland the law is different and there is no Bill of Sale. Instead, the credit agreement may be a hire purchase agreement or conditional sale. Something which offers consumer rights and protection under the Consumer Credit Act 1974.
If you feel you are being treated unfairly by your logbook loan provider then you have the right to complain.
If you do not receive a satisfactory final response from them within eight weeks, you can take the matter up with the Financial Ombudsman.
Their address is:
The Financial Ombudsman Service
183 Marsh Wall, London
Select a reputable logbook loan provider
A small number of disreputable providers have given logbook loans a bad reputation for being heavy handed and too expensive.
There are lots of different logbook loan providers available online and on the high street. However, most are reputable, safe and FCA regulated.
Before agreeing to a loan we recommend you check the details below:
· Look for online reviews from people who have taken out logbook loans with the provider in the past – be wary if there are lots of bad reviews
· Confirm whether there is a fee for early repayment – ideally, you would like the option to repay early without a penalty
· Check if there is the option to make repayments weekly or monthly – you want to choose a repayment schedule that works for you
· Enquire about charges for contacting you. Many loan providers add on extra charges for phoning you and sending letters when you are behind with repayments. Check that the charges are reasonable
· Shop around for the lowest interest rate, the Annual Percentage Rate on logbook loans varies from 99%-450%
Are logbook loans safe?
By taking the time to understand the process and legalities of a logbook loan and selecting reputable lenders, you should find a logbook loan is a safe and convenient way to borrow money.
There is a risk of losing your car if you don’t keep up with repayments and so you should ensure that you always repay on time.
If you have debt issues then many organisations, such as Citizens Advice offer free and impartial advice.