A logbook loan is a loan secured on your vehicle, meaning that, the lender owns your vehicle until you have repaid the loan. You are able to carry on using your vehicle providing you keep paying the loan. If you don’t your vehicle can be taken away and sold. Logbook loans tend to be very expensive and pose a risk and you should therefore avoid them if you can. It is recommended that you seek free, independent and impartial debt advice first before making the decision to get one.
Logbook loans are available in England, Wales and Northern Ireland only (not Scotland). If you’re offered a loan in Scotland, it’s likely to be a hire-purchase or a conditional sale agreement, you should therefore examine any agreement carefully to check what is involved and how it works.
How does the loan work?
Logbook loans are normally available on the high street and also the internet. The amount you can borrow depends on the value of your vehicle but usually between £500.00 and £50,000.00 and some lenders may only lend you up to half the value of your vehicle. The typical Annual Percentage Rates (APRs) are 400% or higher and there is an expectation to repay within 78 weeks for a lot of logbook loans.
When you obtain a logbook loan you will be asked to sign two separate agreements. The first is a personal loan, regulated by the Consumer Credit Act, this details how much you borrow and how the loan is to be repaid. The second is a ‘bill of sale’ which transfers the legal ownership of your vehicle to the lender until the last payment on the loan is made. You are then normally asked to hand over your logbook (vehicle registration document), even if you don’t the lender will still retain ownership until you have cleared the loan.
A bill of sale and the law
The majority of lenders will transfer the money into your account using electronic payments and some will offer a quick cash transfer service, but this usually attracts charges of up to 4% of the loan for this service.
Paying back the loan
Some agreements ask you to repay the whole of the amount you borrowed in the final month of your contract and the payments prior to this will cover the interest only. As logbook loans attract an exceptional amount of interest you could end up paying thousands more than what the actual value of your vehicle is.
What happens if I sell the vehicle?
Getting into arrears
It is essential to seek debt advice early if you cannot afford the repayments. If you have fallen behind, the lender will contact you initially and if you receive a ‘default notice’ you will be required to pay the arrears within 14 days to get the agreement back on track. If you don't clear the arrears, the agreement will default and this is likely to lead to repossession of the vehicle, which in addition will incur more costs. Logbook loan lenders may employ a bailiffs to seize your vehicle if you have defaulted on your agreement. Although most lenders will wait until you have fallen behind with several repayments.
Once the logbook loan has defaulted, the lender must wait a minimum of five days before the vehicle can be repossessed. The lender does not need to get permission from the court to do this either. Normally the vehicle will be towed away, and as there is no time limit that they have to adhere to, it can be late at night or early in the morning. The costs for removal will be added to your debt.
Auction of your vehicle
Once your vehicle has been repossessed the logbook loan company will auction it and if the sale price is not enough to cover the full amount of the debt you owe, you will remain liable for the shortfall. If the vehicle is auctioned for more than the amount you owe, the difference must be paid back to you.
At this stage as the vehicle has already been repossessed, any sums of money still owing to the lender are treated as a non-priority debt, which means you can offer to pay the debt back in instalments at a rate affordable to you. You should seek help in drawing up a budget plan, especially if you have other debt too. There may be alternative debt solutions available to you.