The honest truth about logbook loans

What is a logbook loan?

A logbook loan is a loan to an individual that is secured against the trade value of the borrower’s car. The customer borrows a sum of money and the lender holds the logbook / registration certificate of the vehicle as security. If the borrower is unable to repay the loan, the lender will then have the right to cease the vehicle and sell it to pay the debt. No court order is required as the borrower is essentially giving the ownership of the car to the lender as a condition of the loan agreement.

Borrowers usually take out logbook loans because they generally have a lower interest rate than other short-term loans, such as payday loans. Lenders will also lend up to 75% of the trade value of a car.

Benefits of logbook loans

The main benefit of a logbook loan is that an individual with a poor credit rating is able to borrow money if he or she can provide security for the loan with a vehicle. It is good business for the lenders as they can be confident that they will recover their money whatever happens, and it can be good for the borrower as it can provide them with much needed short-term lending. 

Where to get logbook loans

Searching Google will reveal many companies that offer logbook loans. Logbook loans are not a new service; they have now been around for about 10 years.

There are companies online that provide comparison services for the different loan providers, showing the minimum and maximum loan possible, the annual APR and the representative APR.

What is involved?

Acquiring a logbook loan is very straightforward. The car is valued, often by using an industry guide, such as Parker’s or Glass’ guides. The loan will usually be limited to a percentage of the lowest likely trade price. If the vehicle has any finance outstanding this will be deducted from the loan amount.

In exchange for the agreed loan the borrower hands over the V5 logbook (vehicle registration certificate) to the lender so that they can change ownership of the vehicle if the loan is not repaid as agreed. Technically the lender owns the car from the point of the agreement. So long as the borrower can repay each loan instalment, usually a weekly payment, they will continue to have full use of their car.

Most companies set some strict criteria before lending. Vehicles must be currently taxed, have a MOT test certificate and insurance. Borrowers must also be able to prove that they have a steady income and are able to repay the loan. 

Logbook loans can be risky for borrowers. If cash flow does not improve there is a serious risk of losing a car and the price for the car will be likely to only cover the capital loan amount. By the time a few instalments have been missed interest will have increased, and it will be unlikely that the borrower will see any cash back from the sale of the vehicle.

These loans are really only suitable for those who need some money for just one month. For example, a loan of £2000 will be repayable at around £2200 after one month. Over a longer period the interest rate will result in much higher payments. A loan of £1000 will generally cost around £4000 over a year. It is a very expensive way to borrow.

Currently there is a lack of regulation in the industry and many people have lost their vehicles when they thought they had in fact repaid the loan. The Money Saving Expert forum has countless cases of people borrowing money for one month, repaying in full, only to be told that they missed a payment and that bailiffs were seizing the car. The only option for the borrower is to fight the company in court, at their own cost, to recover their vehicle.

Logbook loans are a good choice if you have a reliable income and can be sure to repay the loan in full, and not miss any weekly payments. If you cannot afford to lose your car and your cash flow is unreliable, logbook loans are not an option. Sole traders that rely on their vehicle for work should never take out a logbook loan.