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How logbook loans can lead to debt

Posted 30 March 2015

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Taking out a loan and securing it against your car might mean that you can get approved quickly, but you should be aware of the risks.

If you own a car and you’re looking to take out a loan quickly, you might be tempted by a logbook loan. This is where your vehicle is used as security if you can’t pay the loan back. You still get to keep using your car as normal, but if you don’t meet your payments, the lender has the power to repossess it. You can usually get the money in just a couple of days and some lenders don’t carry out credit checks, making it seem an attractive prospect if you’ve had problems with your credit score in the past. The APR on logbook loans is often very high in comparison to traditional personal loans, meaning it’s very easy to get into debt if you find yourself unable to pay every month.

The facts

A logbook loan is a type of secured loan, but it’s not secured against your home like a mortgage … it’s secured against your car. To take out a logbook loan, you first have to sign a ‘bill of sale’ to the lender. You’ll also hand over the car’s logbook or V5C vehicle registration certificate. This means that the ownership of your car now transfers to the lender until you’ve paid the loan back in full. You’ll still be able to drive the car and use it as you usually would, but you don’t actually own it. You’ll also need to continue to tax and insure it.


If you don’t keep up repayments on your loan, the lender may repossess your car. Citizens Advice Bureau says 49,745 logbook loans were taken out in 2013, and it predicts 2014 figures to be 59,286, showing that this type of borrowing is becoming more common.

What you should be aware of

Taking out a logbook loan is usually an expensive way to borrow, with the Money Advice Service reporting that interest rates are typically around 400% APR. Logbook loans usually last for 78 weeks … though you may be able to pay it back quicker than this. Some lenders may encourage you to keep borrowing … by offering you more credit as you pay down your initial loan balance … so you get into a situation where you keep making repayments but never get any closer to paying off what you owe.


If you miss payments on your loan, your lender is within their rights to take your car … without going to court … even if you only have a small balance outstanding. And if they then sell the car for less than what you still owe, they can still pursue you for the balance. So you could lose your car over a potentially small outstanding loan. And if you rely on the vehicle to commute to and from work, you might end up losing your job too.


If you’re already struggling to manage your budgeting and make ends meet then taking on additional borrowing could end up leaving you unable to afford to repay your debts.


It’s also important to be sure when buying a second-hand car that it doesn’t have a logbook loan attached to it. Some disreputable car dealers will sell vehicles on, despite them already having a logbook loan attached to them … meaning lenders will try to repossess the car from the new owner. One way to prevent this if you’re looking to buy a second-hand car is to make sure you only go to a trusted dealer. Ask to see the car’s logbook, as if the dealer can’t show it to you, there may well be a logbook loan taken out on the vehicle. You should also do a search on the car through the DVLA, as well as through the government’s vehicle enquiry service.


Logbook loans are a high cost way to borrow, so if you’re looking to apply for credit this way, you might want to look at another option. Check out our blog on alternatives to payday loans, as the forms of credit discussed there could still apply to your situation.


If you’ve already got a logbook loan and you’re struggling to make the payments on this, you don’t have to deal with this on your own. Getting in touch with a debt expert, like the ones at the Debt Advisory Centre, could be a way to find out about debt solutions which may be available to you, and talking about your problems may help you to start getting back in control of your financial situation.

by Kyri Levendi

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