A logbook loan (or log book loan) is a loan secured against your vehicle. By taking one out, you will enjoy access to credit you might not be able to get elsewhere, but you will also have to transfer ownership of your vehicle to the loan company until you pay them back.

In this article we’ll give you all the information you need on logbook loans – what they are, how they work, what happens if you can’t pay what you owe, and the best places to get free debt advice if you find yourself in that situation.

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What are logbook loans?

Logbook loans are relatively new in the borrowing market and involve taking out a loan against the value of your vehicle. By taking a loan secured on your vehicle, you offer the lender an assurance that you will keep up with logbook loan repayments. If you don’t, the lender has a right to ownership of your vehicle.

This type of finance agreement is normally used to borrow sums of money from £500 to £50,000, but it carries a much higher risk than debts offered by high street banks. Even though your vehicle can be taken, and your credit score will be affected, you may still need to pay the logbook lender the original loan amount, plus interest and additional charges.

How do logbook loans work?

‘Logbook’ is the simple term for a Vehicle Registration Certificate, also referred to as the V5C form. It’s this document you’ll hand over to the logbook loan lenders, along with a credit agreement and a bill of sale.

You hand over the bill of sale for your vehicle in exchange for the money you borrow. How much you can borrow depends on the value of the vehicle. Usually the higher the value, the more money the logbook lender will give you, although some logbook loan companies will only every lend you 50% of what it’s worth.

By using your vehicle as collateral, you’re transferring ownership to the lender until the debt is paid back. You can continue using it during your loan agreement, but the logbook loan company will keep your logbook until your final payment has cleared.

Once the loan has been cleared, you’ll get it back. If you miss any payments, however, your car could be taken from you. That’s why these loans are so risky – it makes it very easy for the loan company to repossess your car if you begin to fall behind on payments.

These kinds of loans are only available in England, Wales, and Northern Ireland. If you live in Scotland and are offered a similar arrangement, it’s probably a hire purchase agreement or conditional sale. These operate slightly differently, so you should make sure your read the agreement closely before moving forward with it.

What causes logbook loan debt?

It’s quite common for people to find it hard to pay back a logbook loan. People who enter this type of agreement are likely to be dealing with other money problems – often the reason they need an alternative source of funding in the first place.

A common cause of problem debt is people using logbook loans to pay off other debts. These types of loans are normally very expensive, with interest rates as high as 450%, and companies don’t usually run credit checks when considering applications.

The lack of a credit check makes them particularly attractive to people in money trouble, who see it as a last resort to get free of debt. But the sky-high interest rates on their logbook loan, combined with the debt and interest they have already accrued, can create huge problems. You should always seek debt advice before entering this kind of agreement.

What happens if you can't pay your logbook loan?

There are several ways the lender can chase you if you fail to pay your logbook loan. The actions become more severe the longer you take.

The first time you default

The lender must at first send you a default notice. You will be given 14 days to respond to the notice and pay back what you owe. It’s a good idea at this point to seek debt advice. A debt charity will be able to offer you free debt help, and take you through the debt solutions available to you.

If you fail to pay after receiving a default notice

If you don’t pay after receiving the notice, you may still have time to seek money advice or arrange a debt solution. Typically, a logbook lender won’t reclaim your vehicle until you have missed several payments or continue to show no signs of being able to repay your debts.

If you continue to ignore your debts

Eventually, if you continue to ignore your debts, logbook lenders have the right to send bailiffs to your home to reclaim your car. Remember, they own the vehicle, so you won’t be able to stop them. Even if they sell the vehicle, you may still owe money on your debt if the amount they raise from the sale is less than what you owe.

Can I get out of a logbook loan?

In entering a logbook loan, you have signed a binding agreement to pay back the money you owe over the agreed period of time. That means the best way to get out of a logbook loan is to pay it.

Some lenders will allow you to repay early, so if your financial situation changes or you come into an unexpected sum of money, you can settle your debt before the end of the agreement without facing any penalties or charges.

If you think you will struggle to pay your logbook loan, you should consult with a debt charity. They can offer you free debt advice and point you in the right direction should your situation grow more serious.

Another resource is an Insolvency Practitioners. Insolvency Practitioners offer formal debt solutions like Individual Voluntary Agreements (IVA) which allow you to consolidate certain types of debt into a single monthly payment, and write off unsecured debt you can’t afford when you reach the end of your agreement.

Can I sell my car with a logbook loan?

Some people with logbook loans may wish to sell their car, with the idea that by selling their current vehicle, they will be able to raise enough money to pay off what they still owe on their agreement, and use what’s left over to purchase a new car.

Unfortunately, that’s not possible. People with logbook loans have given up their ownership of the vehicle by entering the agreement. For as long long as you have an outstanding balance with the lender, they own your vehicle, and therefore you cannot sell it.

How do I get help with logbook loan debt?

Logbook loans rarely have the same customer security as other car finance options. Many have extra fees and charges built in for things like paying your agreement off early or late payments.

The loan provider is able to take action against you for any missed payments and can be known to call in bailiffs – sometimes without even having to apply to a court. If you’re thinking about using a logbook loan as a way out of debt, talk to IVA Plan first.

Contact us now for confidential debt help. Our expert advisers have years of experience dealing with all manner of debt problems, and will make sure they give you the best advice for your situation.