What is a logbook loan?

As well as payday loans, overdrafts, credit cards, and other short-term forms of personal credit, you may have come across the term ‘logbook loan’. But what are logbook loans? And how does a logbook loan work? Here, we take a look at logbook loans in detail, as well as outlining some potential alternatives which might be more suitable for your situation.

In this guide: 

• What is a logbook loan? 
• How much can I borrow against my car?
• How do logbook loans work? 
• Advantages and disadvantages of logbook loans 
• What happens if you can’t repay a logbook loan? 
• Logbook loan alternatives  

What is a logbook loan?

Logbook loans are secured loans against a car. They’re offered by FCA-regulated lenders and involve borrowers handing over ownership of their vehicle until the loan is repaid. Taking out a logbook loan involves a high level of risk, which could see you losing your vehicle if you’re unable to repay for any reason.

The lender temporarily owns your vehicle, which means you won’t be able to sell it until the loan is repaid. It’s also an expensive way to borrow, as the APR is likely to be higher than other types of loan.

How much can I borrow against my car?

Logbook loan providers offer loans of various values, usually depending on the value of the vehicle you're offering as security.

Some lenders may only lend around half of the value of your vehicle, but be aware – you could still stand to lose it. In the event that you can’t repay, the lender can force a sale of the vehicle to get back the amount of money they lent to you in the first place.

How do logbook loans work?

When you take out a logbook loan you’re handing over temporary ownership of your vehicle to the lender. This process tends to follow these steps:

1. You’ll often need to hand over the vehicle’s logbook or registration documents.
2. Under the logbook loan model, the lender continues to allow you to use the vehicle – providing you keep up with repayments as set out in your credit agreement.
3. As well as the credit agreement, when you take out a logbook loan, you’ll have to sign a bill of sale, which makes the lender the legal owner of the vehicle, enabling them to sell it as a result. This is providing they register the bill of sale with the courts.
4. When you take out your logbook loan, you’ll be given information about your loan agreement, including details of the repayments you need to make. Some logbook loans offer an interest-only repayment structure, with the actual loan amount not repayable until the final month of the loan term. Although this can seem like a tempting option, you’ll need to ensure you have the lump sum available to repay when the term is up, or you’ll stand to lose your vehicle.

Am I eligible for a logbook loan?

So you might be wondering, can I get a loan against my car? Well, logbook loan applications are typically assessed on a case-by-case basis, so many lenders may still offer you a loan using your car as collateral, even if you have a less-than-ideal credit score.

When it comes to logbook loan eligibility criteria, the following are also key:

• Vehicle ownership: Most lenders require the V5 logbook to be in your name and for the vehicle to be fully paid off. The vehicle also needs to be worth at least £500, or the lender won't usually consider it enough of an asset.
• Condition and value: Lenders usually have minimum requirements for the vehicle’s condition, age, and market value too.
• Age: You must be 18 or over to apply for a logbook loan in the UK.
• Income and affordability: While logbook loans are often available to those with poor credit, lenders still need to ensure payments will be met. You may therefore be asked for proof of income, in the form of payslips or bank statements. You’ll also need to have a UK bank account.

What are the advantages and disadvantages of logbook loans?

Next, let’s take a look at some of the benefits and drawbacks of taking out a logbook loan.

Logbook loan advantages

• Logbook loans provide you with access to quick cash, helping you cover emergency, unexpected expenses.
• There’s no need for a perfect credit score with a logbook loan, meaning they are accessible to those with poor or limited credit histories.
• Even though your vehicle is used as security, you can continue using it as normal – as long as you make the repayments on time.

Disadvantages of a logbook loan

• Interest rates for logbook loans are often upwards of 400%, which means they are one of the most expensive forms of borrowing out there. Lenders can also apply high charges and penalties if you can't afford to repay the loan or are late making payments.
• If you can’t keep up with these payments, you face the possibility of losing your car.

Are logbook loans safe?

If you take out a logbook loan, you can easily end up having to repay a much higher amount than you originally borrowed, even if you stick to your repayment schedule. They also don’t have the same level of consumer protection as short-term loans customers. For example, short-term loans are closely regulated by the FCA and interest rates are capped at 0.8% per day.

The FCA found that many logbook loan providers fail to carry out proper affordability checks, basing loan decisions only on the value of the vehicle being offered as security, as opposed to the borrowers’ ability to repay the loan. This can be problematic because owning a valuable car does not automatically mean a borrower has the money available to repay.

What happens if you can’t repay your logbook loan?

If you default on your logbook loan and are unable to make repayments, the lender can sell your vehicle to cover the loan repayment. If they’ve failed to register the bill of sale with the court, they may still be able to force the sale of your vehicle by applying through the courts to repossess it.

There have been some reports of logbook loan providers using intimidation tactics on borrowers who have failed to repay their loans. The FCA has pledged that it will not register lenders who do not fulfil FCA lending requirements when offering logbook loans. This gives consumers some protection from illegal lending practices providing they always make sure a lender is FCA-registered.

Can taking out a logbook loan affect my credit score?

If you miss a payment or default on the logbook loan, a lender can report this to a credit reference agency. This can have negative implications on your score, making it more difficult to borrow in the future.

As with any type of credit agreement, it’s crucial you do everything you can to keep on top of payments.

What are the alternatives to logbook loans?

Putting your vehicle up as security for a loan means you can lose one of your most valuable assets simply by defaulting on a payment or two. Several more options exist for people who need access to money to tide them over, including:

• Short-term loans, such as payday loans
• Overdrafts
• Credit cards
• Loans secured against your property/homeowner loans
• Vehicle finance
• Longer-term unsecured personal loans
• Store cards
• Online purchase credit, such as Paypal credit and Klarna
• Loans from family or friends

Where can I seek further support?

If your debts are becoming unmanageable or you’re looking for further support, there are multiple organisations that offer free, independent advice. These include:

• Citizens Advice: Offers help with everything from debt to budgeting queries.
• Stepchange: A leading UK debt charity.
• Debt Advice Foundation: Provides people with one-on-one debt support.
• National Debtline: An independent debt charity available to talk to over the phone or online.

Taking out any kind of credit comes with risks and it’s vital that you think carefully about whether you can afford to repay the amount you have borrowed, plus any interest that will be applied to the loan, together with any fees or charges.

Look at what you stand to lose if you can’t afford to pay, as this can happen to anyone at any time. Our guide on what to consider before you take out a loan can help you out.