Logbook loans

With logbook loans, you’ll legally sign over ownership of your car for the duration of your loan. Although you’ll still be able to use your car, the lender will be able to repossess it without a court order if you fall behind on your repayments.

The risk of losing your vehicle plus the high interest rates attached to logbook loans are two reasons why you should look at other borrowing options first.

How do logbook loans work?

You could potentially borrow up to £50,000 with a logbook loan from a lender such as Varooma, although as you’d expect, this will be dependent on the value of your vehicle. Lenders will typically let you borrow no more than 50% of its official resale value.

Once a loan is agreed, you’ll be required to hand over the V5 logbook of your vehicle (hence the name). The lender will then have a “bill of sale” registered with the High Court, which makes it lawful for the lender to repossess your car if you fail to keep up with repayments.

During the term of the loan, you’ll make regular repayments, each of which comprises the interest accrued so far and part of the original sum borrowed.

In rare cases, logbook loans can be issued on an “interest-only” basis – this means that during the term of the loan, you’ll only pay back the interest accrued, but at the end of the loan, your final repayment would comprise interest and the full sum originally borrowed.

Although interest-only loans typically make for smaller regular instalments, they are almost always significantly more expensive overall because they involve borrowing more for longer.

The circumstances under which a lender will seek repossession of a vehicle will vary, but it’s advisable to check into this before agreeing to a logbook loan. If the lender does repossess the car, the lender will sell it in order to recoup any losses.

Are logbook loans safe?

When the Financial Conduct Authority (FCA) took charge of regulating this market, it released a report revealing the tactics of several unscrupulous lenders, including a lack of eligibility checking, heavy-handed debt recovery methods and companies seeking to repossess vehicles after just one missed repayment.

Underhand tactics are rarer since then, but under the current rules, these companies can still get away with more than payday lenders, for example.

There are no caps on interest charges or late payment fees like there are for payday lenders, and logbook loans don’t fall under the category of high-cost short-term credit.

A logbook loan can potentially last over a year, yet it may still have an APR over 400% attached, so debts can be difficult to handle and the threat of losing your car could quickly become very real.

How to compare logbook loans

If you do plan on taking out a logbook loan, here are some of the key features to consider when comparing lenders.

• Overall cost. If you only look at one factor, it should probably be this one. As a general rule of thumb, whenever you borrow money, aim for the lowest overall cost while making sure the repayment schedule is comfortably affordable.
• Repayment amounts. The difference between the best and worst rates on the market can be vast, so shop around to keep costs manageable. As a general rule, the longer the term of your loan, the lower your monthly repayments will be but the more interest you’ll pay overall. Choose the shortest possible term that makes your monthly repayments comfortably manageable. If you miss monthly repayments, you’ll be subject to late fees and could ultimately lose your car.
• Fees and charges. The key fee to watch out for is late fees. If these are too high, it could make getting back on track with your repayments really difficult, meaning you’ll be in danger of losing your car.
• When a lender will seek to repossess your car. Most lenders won’t seek to repossess your vehicle until you’ve missed several repayments, but it’s important to be aware when this process will begin.

Pros and cons of logbook loans

Typical scenario

Jason urgently needed to borrow a lot of money. He had an expensive car, but a terrible credit rating. For this reason, he decided a logbook loan was best for him. After shopping around for the best deal, he handed over his logbook and received the money soon after. After successfully repaying the loan on time (including a hefty amount of interest), ownership of the car was handed back over to him.

The bottom line

The FCA has helped to clean up this market, but it’s still expensive and risky enough to be considered a last resort for the vast majority of borrowers.

Frequently asked questions

• Can I repay my loan early?

  By law, logbook lenders must allow you to pay back your loan early, although some may charge a fee if you do.

• What happens if I sell my vehicle?

  If the selling price is less than what you owe, you’ll still be liable to pay the shortfall.

• What happens if I buy a vehicle that turns out to be owned by a logbook loan company?

  The company still has the right to repossess this vehicle! You can determine whether a car has outstanding debt secured against it by ordering an HPI check before you buy it.