If you are struggling to get a loan approved from a mainstream lender and own a car then you may want to consider a logbook loan. But what are logbook loans?
While it may seem like a useful way to borrow money, there is a risk of losing your car if you do not keep up with repayments.
The interest on a Logbook loan, whilst generally more expensive than mainstream lending, will still usually be less than an unsecured short-term loan or payday loan.
In this article, we explain what logbook loans are and considerations you should take into account before you apply for this type of product.
What are logbook loans?
A logbook loan is a type of loan that uses your car as security. You borrow an agreed sum of money from a lender against the value of your vehicle (the asset). They then temporarily take ownership of your car until you pay the money back.
You are usually allowed to drive your vehicle during the period of the loan and must first provide the lender with your ownership documents, such as your logbook (V5 Document).
This is why it is given the term, ‘logbook loan.’
The lender is normally entitled to sell your car to recoup their money if you do not keep up with your repayments. If they do not receive enough money to cover the agreed loan amount then they could take you to court to recover the rest.
How much can you borrow?
The amount of credit that you can borrow depends on the value of your car.
Loans are typically offered for £500 – £50,000 and you can apply to borrow from 50% – 70% of your vehicle’s value.
How long could it take to repay my logbook loan?
Most logbook loan terms are payable over an 18 month/78 week period, although you are usually entitled to pay it back earlier.
In some cases, you may only be repaying the interest charges until the last month of your contract.
How long does it take to receive logbook loan funds?
Your vehicle documentation usually needs to be reviewed before your loan is approved so you might not always receive the money instantly.
Some lenders provide a cheque, which takes longer to process than a bank transfer.
If you are offered ‘same day’ money into your bank account then you may be subject to a charge.
Eligibility for a logbook loan
You usually need to own your car outright although in some cases, you may be accepted if you are paying for your vehicle on finance.
If you are still making finance payments then you should be nearing your final payment and must notify your finance provider before taking out the loan.
What type of vehicle do I need to have?
Unless it is very high value, your vehicle usually needs to be under 10 years old.
It should also have an up to date MOT, tax and insurance. During the period of the loan, you are responsible for ensuring they remain valid.
There may be other criteria that both you and your car need to meet in order to qualify for a logbook loan. Check all of the specific details before you make your loan application.
Who offers logbook loans?
Logbook loans are typically offered by licensed lenders, not banks or building societies. There are lots of lenders offering them online or by telephone and in stores such as cash converters.
Before signing up, check that the lender is FCA regulated.
How logbook loans work across the UK
There is a difference between getting a logbook loan in Scotland and getting one in the rest of the UK.
Logbook loans in England, Wales or Northern Ireland
If you are in England, Wales or Northern Ireland then when you take out your loan you will have to sign a ‘bill of sale.’
This is a credit agreement that is officially recognised by the High Court, so long as the lender registers it.
It gives the lender temporary ownership of your car for the duration of the loan but allows you drive it if you keep to the terms of your agreement.
If you fail to make the agreed repayments and the bill of sale is not registered with the High Court then the lender must get the court’s approval to repossess your car.
Be sure to check whether your bill of sale has been registered.
Logbook loans in Scotland
The law is different in Scotland and there is no ‘bill of sale’. Instead, it is likely that the money is lent to you through a different credit arrangement, such as a hire purchase agreement.
This would provide you will consumer rights and protection under the Consumer Credit Act 1974.
You will usually still be allowed to drive your car for the duration of the loan so long as you keep up with your repayments.
Logbook loans for bad credit
A logbook loan is a secured loan. This means that the money that you borrow is secured against your property, in this case, your vehicle.
If you do not pay the money back then the lender can sell your car to recoup the money that you owe them.
This offers the loan provider a level of security, which means they may be willing to lend to you even if you have bad credit.
Some logbook loans are offered without a credit check.
A secured loan
Secured loans often come with lower interest rates than unsecured loans because the lender is offered more protection. They have an asset of yours that they can sell if you fail to keep up with repayments.
Interest rates for logbook loans
Interest rates for logbook loans are typically higher than mainstream finance, so not only do you risk losing your car if you fail to make your repayments, you could end up paying back a lot more than you originally borrowed.
Comparing the APR
If you decide to take out a logbook loan, then compare the Annual Percentage Rates (APR) between lenders, as they can vary significantly.
The APR is the total amount of interest that would be due on the loan if you were to repay it over one year. It provides a useful way to compare interest charges.
The APR on logbook loans can be as high as 400% (although some start from just 99%) so you should calculate the repayments carefully and check that you can afford them.
Consider rebuilding your credit
If you do not need the loan urgently then consider rebuilding your credit first so that you can access a loan with a lower interest rate.
When you have better credit you may be able to access loans with lower interest rates, which means that the overall cost of borrowing will be cheaper.
With good credit, it may also be possible to take out an unsecured loan, meaning that your home or car would not be at risk if you fail to keep up with repayments.
Read more about rebuilding your credit here.
There may be other options available to you, depending on the amount that you need to borrow and your personal circumstances.
Do your research and look at other types of loan available, such as personal and payday loans along with their lending criteria. You can view the products available from Cash Lady here.
What to consider before getting a logbook loan
· Is your car eligible?
· Can you risk losing it if you don’t keep up with the repayments?
· Is the lender regulated?
· What are the terms of your credit agreement?
· How much is the interest on the loan?
· Can you afford the repayments?
· Is there a cheaper, less risky way that you can borrow?
If you are experiencing financial difficulty or are struggling to repay your debts then you can seek free and impartial advice from Citizens Advice or the Money Advice Service.