A way to borrow up to 70% of your vehicle’s value, logbook loans can provide access to credit if you own a vehicle. Particularly if you have failed to get a loan approved from a mainstream lender such as a bank or building society. But how do logbook loans work?
Interest rates can start from as low as 99%. Depending on the value of your vehicle and your financial situation, you may be able to borrow significantly more than with a payday loan.
Before handing over your logbook, it is first important to understand how this type of loan works. Because if you do not keep up with the repayments then your vehicle could be taken away.
How do logbook loans work?
Logbook loans provide a convenient way to access a loan if you own a vehicle and have struggled to access credit elsewhere due to bad credit.
You are usually required to hand over temporary ownership of your vehicle to the lender. Although you can continue to drive it so long as you keep to the terms of the credit agreement.
Once you have paid off the loan, ownership will be transferred back to you. However, if you don’t keep up with repayments then the lender may sell your car to recoup their money.
Your car should be worth at least £1000, under 10 years old and free from finance, or nearing the end of your finance agreement. The criteria varies between lenders and so you should check the details before you make your loan application.
Loan application and vehicle checks
As part of the loan process, you will be required to hand over your logbook or V5 registration document to prove ownership.
The lender will also conduct an HPI check on your vehicle to establish its value, that it’s free from finance and that you are the registered owner.
You will be asked to provide personal details. These include your address and financial information, such as your income and regular expenditure.
The loan provider usually also runs a credit check and reviews your loan affordability. But you should also personally ensure you are able to make the repayments.
Depending on your loan provider this process can be completed online, over the phone or in person. Yet in some cases, it can be completed in as little as one to two hours.
The money you borrow might be deposited in your bank on the same day and some loan providers also offer the option of providing cash or a cheque.
Bill of Sale
In England, Wales and Northern Ireland you are required to sign a Bill of Sale.
This provides the loan provider with temporary ownership of your vehicle and the right to repossess it without a court order. So long as they have first registered your Bill of Sale with the High Court.
It also allows you to keep the vehicle in your possession so long as you keep to the loan agreement.
In Scotland, where the law is different, the Bill of Sale does not apply and your loan will be under a different agreement. Possibly a hire purchase agreement, which may offer you more consumer protection.
What are the benefits of a logbook loan?
A logbook loan is a secured loan, which means it is secured against your property, in this case, your vehicle (the asset).
Borrowing in this way can provide some benefits over non-secured loans because it is less risky for the lender. That is since they can sell your car if you fail to keep up with repayments. This is why they may lend to you even if you have bad credit.
It is, however, more risky for you as a borrower, because you could lose your car if you fail to repay the loan. You should calculate your repayments carefully before agreeing to the loan and then always repay on time.
Lower interest rates than payday loans
The interest rates on logbook loans can be high compared to mainstream finance. However, they typically come with lower interest rates than other types of loan for bad credit, such as payday loans.
Compare the Annual Percentage Rate (APR) offered by each lender as they can vary significantly. Typically from between 99% – 450%.
The lower the APR and the quicker that you pay it back, the less will you will repay on top of the original amount that you borrow.
Borrow up to £50,000
With a logbook loan, you may be able to borrow a larger amount of money than with a payday loan or personal loan. In some cases up to £50,000.
The amount that you can borrow will depend on:
· The value of your car
· Your credit history
· Your current financial circumstances
· The maximum amount that your loan provider offers
Repay your loan over a longer period than a short term loan
Logbook loans typically offer repayment periods of between 12 – 36 months, which is much longer than you get with a payday loan. Plus, it offers more time to get your finances in order.
Repay your loan early without penalty
Many logbook loan providers do not issue a penalty for early repayment but check the details before you sign up.
Sometimes it is also possible to offer a partial resettlement where you repay a chunk of your loan early. This is so that the interest on the remainder of your loan is reduced.
The quicker you repay your logbook loan, the less interest you will pay back overall. So if you can, aim to pay back the money as soon as possible.
Keep to the terms of your loan agreement
To avoid losing your car or incurring extra charges on top of your loan, you must make your repayments on time. Along with ensuring that your car is taxed, insured and has an up to date MOT.
If your circumstances change then notify your loan provider immediately.