A logbook loan is a way to borrow money using the value of your car as a guarantee that you will pay your logbook loan debt back to your creditors.
One of the main benefits is that you can continue to use your vehicle during the loan agreement, under the condition that you continue to make the agreed monthly payments.
However, like anything, a logbook loan debt does come with considerable risks. In this guide, we will explore the risks and benefits of taking out this loan and what support is available if you find yourself taking out a loan against the value of your vehicle.
What is a logbook loan?
A logbook loan debt is a secured form of lending against your car, van, or motorcycle. Borrowers will transfer their vehicle ownership to the lender as security for the logbook loan they are taking out.
You will regain ownership of your vehicle once you have paid your debt back to your logbook loan company.
How much can I borrow with a logbook loan?
The amount you can borrow with a logbook loan depends on how much your car is worth. Typically, they will offer up to 50% of your car’s value.
Be aware that in some agreements, you will be just paying off the interest charges until the last month of your contract, and in the final month, you will be expected to repay the lump sum borrowed originally.
Check your loan agreement before signing, as repaying a large amount at the end of the contract may require a lot of forwarding planning and budgeting to ensure that this can happen.
How long does a logbook loan last?
Logbook loans usually last for 78 weeks; however, you can pay the logbook loan debt off early. It would help to note that many logbook loan companies charge an early repayment charge, so it is essential to check the small print before applying.
What are the costs of taking out a logbook loan?
The benefits of a logbook loan are that you can often get the loan approved and the money transferred quickly; however, some companies will charge fees of up to 4% of the loan, which on more significant loan amounts may add up to quite a hefty charge.
The highest cost of taking out a logbook loan is the interest rate charges. Annual Percentage Rates (APR) on a logbook loan can be up to a staggering 400%.
So, let’s do the Maths.
- The amount borrowed: £3,000
- Loan period: 78 weeks
- Your Repayments Weekly Payments: £110
This will mean that you will have paid £8,580 in loans at the end of your term compared to what you originally borrowed, which was £3,000. Some logbook loan companies offer you different and lower interest rates, but as you can see, it is an expensive loan to take out, so consider it carefully.
How does a logbook loan work?
The following steps are used when taking out a logbook loan:
- You will sign a personal loan agreement. This will consist of how much you will borrow and the repayment plan.
- You will need to sign a ‘bill of sale’. This shows that you have transferred ownership to the creditor until the loan has been paid off. Some companies ask for your V5 logbook as a symbolic way of establishing ownership of your car; however, irrespective of your giving them the V5 logbook, they will still have ownership of your vehicle, so you won’t be able to sell it.
- Once your loan has been repaid, the creditors will cease the loan agreement, and you will be handed ownership back of your car.
Remember logbook loans are mainly used in England, Wales and Northern Ireland. It is uncommon for Scottish residents to take a logbook loan as the agreement does not have the same legal powers like the UK, so logbook loan companies may be reluctant to offer loans to Scottish borrowers.
How do you get into debt with a logbook loan?
With the culmination of very high-interest rates attached to a logbook loan, you are already dealing with other financial problems; it is not surprising that borrowers struggle to keep up with the repayments of a logbook loan and, as a result, get themselves into debt.
It is often tempting for borrowers to take out a logbook loan as loan companies will not usually do a credit check to see whether you can make the loan repayments. Instead, they will give you the money to guarantee that you provide them with ownership of your vehicle until they make the payment in full.
People tend to use this option of borrowing if they are desperate to help get out of their worrying financial situation. Think twice before taking out a logbook loan, as you could face severe consequences as a result.
What happens if I can’t make my logbook loan repayments?
It is essential to make your logbook loan repayments, or else you could land yourself in severe financial difficulty.
- Get the bailiffs in – Logbook loan companies can use bailiffs to take your vehicle if you can’t make the repayments. This is usually after you have missed a few of your repayments, so keeping on top of them is paramount.
- They will send you a default notice – The default notice will give you 14 days to respond to them. Be proactive and see if there are any better debt solutions available to ensure you do not lose your vehicle.
- Don’t need a court order – A logbook loan company does not need to go to court to obtain your vehicle as you will have signed a bill of sale, giving them legal authority to repossess your car if the payments have not been made on the loan.
What can I do if I am in logbook loan debt?
- Speak to the logbook loan company – If you have missed payments, the situation won’t disappear. It is essential to speak to your lender to see if they can give you some leniency towards those missed payments. In their interest, you continue to make the loan repayments rather than them taking your vehicle as it is financially beneficial for them as they are charging a substantial amount of interest, which they would prefer you to pay.
- Ask the log loan company to reduce your loan payments – Sometimes, life can involve unexpected changes such as a loss of an income or an illness. If your circumstances do change, speak to the loan company to see if you can be offered any leniency so you can get back on your feet again.
- Allow them to take your vehicle – If you know you cannot pay the debt, your only option may be to allow them to take your car. The loans company will only repossess your car as a last resort
- Ask them to give you two weeks after repossession to pay your loan back – As the logbook loans company must adhere to the code of practice by the Consumer Credit Trade Association (CCTA), if you manage to pay your loan back within two weeks then you will be able to get your vehicle back.
What will happen to my car if the logbook loan company repossess it?
A lot of people get attached to their cars and often give them pet names, so losing this asset can sometimes be heartbreaking. If you default on your logbook loan agreement and the loan company take ownership of your car, sadly, your car/vehicle will be sold at an auction.
If the logbook lender does not make as much money to cover the debt you owe, you will need to make up the difference. This shortfall will be paid back over time to the lender.
However, if your vehicle sells at a higher price than the money you owe, the logbook loan company will need to refund you the amount.
Does a logbook loan affect my credit rating?
A logbook loan does not affect your credit rating as you are transferring over ownership of your car to the lender. You can still use it, however generally, people who take out logbook loans already have bad credit, and therefore this type of loan is often tempting to take out as it requires no credit checking.
However, if you default on your logbook loan and get into debt, this will affect your credit rating. It shows potential lenders that you are finding it difficult to keep up with your loan repayments, making you a riskier borrower.
I need more help and advice on my debt problem.
Logbook loans come with their benefits and offer a great deal of risk. If you consider taking out a logbook loan to get you out of debt, it is essential to weigh the pros and cons of this debt solution.
You may find better alternatives that could help you with your debt problem. Here are a few we have listed below:
- Credit card – This is often a better alternative if your need to borrow is not a considerable amount. All credit cards have varying interest rates and offer credit to people with different circumstances. It is essential to check the APR on the credit cards and see whether it is a better alternative than taking out a logbook loan. Ensure you avoid credit card debt.
- Homeowner loan – This is a form of borrowing in which you use your home as collateral. This is especially good if you need to borrow a more considerable amount than what a logbook loan offers you. However, as you take out a loan under your home, your house will be at risk if you do not repay.
- Debt Consolidation – This could be good if you have a lot of debt and want to clump them all into one monthly repayment. Read more about debt consolidation in our helpful guide.
- Speak to our team – Often, financial help can be mind-boggling, and it is often hard to make an informed decision, especially if you have money worries on your mind. Please speak to one of our helpful advisors who will run you through some debt solutions available and discuss in more detail logbook loans.
