A logbook loan is a secured personal loan where your car is security. That means that if you fail to make repayments, the lender can take legal ownership of the car and sell it to get back their money.
Is this the same as other forms of car finance?
It's not the same as an ordinary "car loan." You don't use the money to buy the car. Instead you use the car as collateral on the loan and you can spend the money however you like.
What if I have a bad credit history or County Court Judgement?
This usually doesn't matter. Most logbook loans don't involve any credit checks. This is because the terms of the loan mean the lender can be relatively confident of getting back their money (through the car) if you fail to repay.
How much can I borrow?
Usually you'll get a wide range of possible loan amounts, with two sets of constraints. At the top end, you won't usually be able to borrow up to the full value of the car as the lender has to make allowance for any possible depreciation or wear and tear, along with the costs involved in collecting and selling the car if necessary. At the bottom end, there's often a minimum loan amount of a few hundred pounds, which is mainly so the lender makes enough on the deal to cover the administration involved.
Can I get a logbook loan on any car?
It has to be a car that you own. You'll usually have to either own it outright with no outstanding finance, or be very close to paying it off completely (in which case the existing lender must approve the logbook loan.) Many lenders will only make loans on cars manufactured after a certain date.
How do repayments work?
Most lenders offer the choice of repaying monthly or weekly. Some lenders don't accept direct debit or standing order payments. If you are considering such a lender, ask yourself whether you are confident of being organised and disciplined enough to make the repayments on time.
What if I don't repay on time?
A key legal condition in a logbook loan is that the lender has the right to seize the car or employ a bailiff to seize your car if you don't repay on time. The lender can then sell the car to pay off the rest of the loan; if the car doesn't raise enough money the lender can take you to court to make up the difference. It's important to remember that the lender does not need to get a court order to seize the car once you fall behind. In practice many lenders will only take and sell your car when you have missed several payments, but you should never rely on this flexibility.
Is a logbook loan for everyone?
The advantages of a logbook loan is that you can get money quickly even with a poor credit history. The disadvantages are the high cost and the risk of losing your car. You should think seriously before taking out a logbook loan and compare its pros and cons with any other borrowing alternatives available to you.
What paperwork do I need?
It varies from lender to lender, but usually you'll need the V5C (the logbook)
, an MOT certificate
(the car isn't much use as security if it doesn't work!), photo proof of your identity, and proof of your address. Some lender also want to see some form of proof of income.
How do the interest rates compare to other types of loan?
The interest rates for a logbook loan vary widely, but tend to be higher than for traditional bank loans, mortgages or credit cards. This is partly because people who take out a logbook loan may be at a greater risk of failing to repay, and partly because people who take out a logbook loan may be unable to get approved for cheaper loans elsewhere.
How can I compare rates?
It can be confusing to compare the actual costs because some lenders may charge fees or not spread the interest charges out evenly across the loan period. To solve this confusion, lenders are required to use the APR, or Annual Percentage Rate
. This is a measure of the cost of interest and fees across one year as a percentage of the loan amount. So, for example, if you borrowed £1,000 at 10 percent APR for a year, you would pay £100 in interest charges and other fees. The actual costs will depend on the duration of the loan and your repayment schedule, but you can use APR to compare different lenders.
One thing to watch out for is the use of APR in adverts and marketing. The rules say this has to be a representative APR. This means that of everyone who is approved for a loan under the conditions detailed in the ad (such as borrowing a certain amount over a certain period), at least 51 percent of customers must be offered this rate or less. So it's still possible you may only be offered a loan with a higher rate than shown in the ad or on a website.
What about fees?
Some lenders charge early settlement fees, meaning that if you pay off the loan early you'll still have to pay some or all of the interest that would have racked up across the rest of the scheduled loan period. Others don't charge fees and let you pay off the loan at any time, so it's worth checking.
How can I spot a good lender?
Many logbook loan firms are part of a group called the Consumer Credit Trade Association
, which has a code of practice that goes beyond simply complying with the letter of the law. The code includes measures such as explaining loan terms clearly, being responsible about only making loans where there's a reasonable assessment that the repayments are affordable for the particular company, and giving the borrower a fair chance to catch up if they fall behind with payments temporarily. Being part of the CCTA doesn't necessarily guarantee a lender is perfect, and not being part of the CCTA doesn't necessarily mean a lender is disreputable, but it's something worth checking out and can give you added reassurance.
Is this different to a V5 loan?
A logbook loan and a V5 loan are the same thing. V5 was the official name for the vehicle registration document that's commonly known as the logbook, though the official name is V5C now.