The Victorians gave us many good things: like Mothering Sunday and lawn tennis. A less welcome visitor from the 1880s are bill of sales and, if you're considering a logbook loan, they could end up costing you your car.
A Logbook loan is a short-term loan that is secured against your vehicle. Like payday loans, they are advertised as a fast, easy way to get money and don’t require a credit check. Also like payday loans, they tend to charge interest at an extremely high rate of interest; usually well over 400% APR.
Are they really that bad?
The maximum you can borrow with a logbook loan is usually based upon a percentage of around 50% of your vehicle’s trade value. This will be determined by a loan officer or agent who will inspect your vehicle – not the market value - and an offer will be made on the basis of this valuation.
The lender will then get you to sign a repayment plan which will require you to pay back the loan within a set time limit (usually 58 weeks).
Logbook loans get their name because you need to hand your vehicle’s logbook- and temporary ownership - over to the lender. Although you will still be able to drive your vehicle, they will technically own it.
You’ll also have to sign an agreement that gives the lender the right to repossess and resell your vehicle - without a court order - if you don’t keep up repayments.
To add insult to injury, if the sale of your car fails to cover the cost of your loan, you will have to pay the difference. And it gets worse; if you can’t cover this difference your possessions and even your home could be at risk.
So are they ever worth considering?
Although the ease and speed of these types of loans may seem attractive to those unable to get credit by other means, they should really have a fifty foot high, flashing, neon warning sign – with bells on it!
Let’s put it this way: if you borrowed £1,500 and repay £53.60 a week over a period of 78 weeks then a typical APR of 437.4% would mean paying back a whacking £4,180.80.
The problem with these kind of instant high interest, short-term loans – aside from the fact that you’re putting your car, and possibly your home at risk - is that once you fall behind in your payments it is very easy for your debt to spiral out of control.
In the last 4 years, the Office of Fair Trading has received thousands of complaints about the questionable tactics employed by some logbook loan companies.
Many of them are centred on:
- the lack of protection once you fall into arrears – some customers have had their cars taken for missing as few as a single payment.
- unfair and aggressive collection processes – includes use of wheel clamping for which a release fee is charged on top of the amount owed on the loan.
- confusing jargon used in the loan agreements.
One horror story involved a loan agreement which contained the provision that the lender could “break open doors or windows to obtain admission” on the premises where the vehicle was stored.
So, if you are even considering taking out a logbook loan, make sure that you read the terms of the agreement carefully.
Make sure that you are fully aware of the repercussions of defaulting on any loan before signing this should help to reduce the risk that you’ll have your car repossessed.
What’s the alternative?
If it is at all possible then you should always look for alternative means of raising credit before undertaking something as risky as a logbook loan.
There are also far cheaper ways of getting credit which won’t put your vehicle at risk.
If your credit rating will allow it, then there are personal loans available from as little as 9% APR. Many of the major credit cards also offer 0% against new purchases for a number of months and - despite their shockingly high APR - even a payday loan might be a better unsecured alternative if you are purely looking for a short-term financial fix.
You may initially be tempted to take one out because you can’t do without your car, yet in doing so you are actually putting your car (and much more) at risk.
Think about it: the lender is issuing you a loan at an astronomical rate of interest based on only half the resale value of your car. Not only will they be making money off you from the loan, but if you fall behind on your repayments then they will become the legal owner of your vehicle.
Essentially, you have paid someone for the pleasure of taking away your car and selling it for a huge profit which they then keep. And, in doing so, you are still liable for the original loan which could result in your home being repossessed.
If it is at all possible to do without your car, then you would be better off selling it yourself on sites like eBay or Autotrader (where you will get far more than 50% of its trade value). You always have the option of using the cash you raise to buy a cheaper car if needs be.
This could only provide a short-term solution to your financial difficulties, but it’s a lot cheaper than a short-term logbook loan that could charge up to 437% APR!
I need to get cash quickly, should I get one?
If you do find yourself considering a logbook loan then it is usually a good indicator that you are already living beyond your means. If that is the case, then would saddling yourself with even more debt really be a good idea?
Likewise, if bad debt or an inability to raise credit elsewhere is pushing you towards a logbook loan, then by taking out another loan that you know you will be unable to repay will just make things worse – especially when you consider the repercussions.
You may be better off talking to your local Citizen’s Advice Bureau to get advice on how best to tackle your debt problems, rather than getting further and further into trouble.
If you desperately need the money and are determined to take out a logbook loan, then try to ensure that you shop around first to get the best deal. Some lenders advertise loans of up to £50k, but never be tempted to borrow more than you can afford to pay back. Logbook loans should only ever be taken out on a short-term basis and for the lowest possible amount needed to get you by.
How do I pick the best deal if I do decide to go for one?
The interest rates associated with logbook loans are sky-high so you will need to shop around to find the cheapest option; this could mean a difference of 100s% APR. You can check interest rates and terms and conditions in our logbook loan comparison table.
Other factors to consider if you are thinking of taking out a logbook loan include:
- the percent of the trade value of your vehicle offered by the lender (can vary from 50% to 60%)
- whether interest is charged on a monthly, weekly or daily basis
- the lender’s maximum vehicle age (varies from 8 to 10 years)
- whether there are penalties for overpayment or early repayment of your loan.
Again if you are determined to take out a logbook then considering these kinds of factors will at least help you get the best of a bad deal.
What will I need to do to get one?
Logbook loans don’t require any credit checks and instant online applications mean that the funds can be transferred to your bank account in as little as 15 minutes. Some don’t even require a bank account as you can either collect your loan in cash or have it delivered to your home.
The only restrictions relating to the application process for a logbook loan relate exclusively to your vehicle:
- You must be 18 or over.
- You will have to be the legal owner of the vehicle.
- Your vehicle needs to be clear of any finance.
- You must reside in either England or Wales.
- Vehicle will need to have a current tax disc, insurance and an MOT.
- Your vehicle must not be older than the maximum age set by the lender.
