What is a Logbook Loan?

What are your options when getting a logbook loan?

Updated: December 30, 2023
Matt Crabtree

Written By

Matt Crabtree

 

It’s possible to get money quickly with a logbook loan. Is this typically the case, though? And what are the drawbacks that matter? 

You may be considering a logbook loan if you need money immediately. Beware of the exorbitant interest rates and costs that may come with them. Let’s explore this, and more, further.

What are logbook loans?

First off, V5 (or logbook) loans are secured loans that use your vehicle as collateral when you do not have cash savings (Savings Apps). This implies that the lender will have temporary ownership of your automobile until the loan is repaid and may repossess and sell the vehicle at any time.   

As long as you make your loan payments, you can keep driving your automobile.

Loans secured against a car's title are only possible in Scotland, despite their popularity elsewhere in the United Kingdom.

In most cases, borrowing logbooks should be avoided because of the high costs associated with doing so. Unfortunately, logbook loans are not something we offer at Compare Banks. 

Why logbook loans are used

You also need to know that logbook loans require you to pledge your vehicle as security. The term “logbook” loan comes from the fact that the lender preserves your vehicle's logbook (V5C).

You will be issued a bill of sale. During the term of the loan, the lender will assert in this document that it has become the legal owner of the vehicle.

The loan is repaid in full and the logbook is returned to you once all payments are current.

There are offers that require you to make payments that don't even cover the principal of the loan. The loan principal is repaid in full when the contract expires.

Your vehicle's title will remain in your name, but the lender will hang on to your vehicle's registration. The automobile is still yours to use and drive as usual.

Typical logbook loans

The following is typical for a logbook loan: 

  1. You may receive a logbook loan through a bank, a credit union, or a local lender. 
  2. Logbook loans require you to sign a document called a “bill of sale”, which temporarily gives the lender legal possession of your vehicle in exchange for a loan. The lender may take your automobile without a court order if they file this papers with the High Court. The lender will need a court order to repossess your vehicle if they haven't registered the bill of sale. 
  3. To verify that you are the legal owner of the automobile, lenders often request the logbook or registration certificate.  
  4. You should be able to receive your money in a variety of ways, including direct deposits to your bank account and physical checks. The terms of your loan, such as the term, APR and payment schedule, should be spelt out in detail by your lender. 

Eligibility criteria

Logbook loans have varying eligibility conditions depending on the lender. However, in most cases, this is what is needed: 

  • You need to be at least 18 years old. 
  • A UK bank account is required. 
  • Your car finance must be paid in full (or have a modest remaining financing balance). 
  • No loan may be placed as collateral on your vehicle. 
  • You can't drive your automobile on the road if it isn't properly licenced, insured, and inspected. 
  • You'll need to show that you have a stable source of income to pay back your debt. 
  • You need to be the car's official owner. 
  • The title of the vehicle (V5) has to be in your name. 

Amounts offered by logbook loans

How much money may I get from a logbook loan? 

The amount you may borrow with a logbook loan will be different from one lender to the next. Lenders that specialise in logbook loans will often provide amounts anywhere from £500 to £50,000. Your car's value will determine how much you may borrow. A 50% auto loan is possible with certain financial institutions.  

Loan amounts may vary depending on your lender. The Money Advice Service estimates that you might borrow anything from £500 to £50,000.

A lender's loan offer will be based on the appraised value of your vehicle. Before agreeing to give you money (Popular UK Savings Apps), certain financial institutions may insist that you get an impartial appraisal of your vehicle. A car's value is a major factor in determining how much money you may borrow.

Logbook loan fees

Logbook loans have very high interest rates, making them more costly than other borrowing options. APRs for logbook loans may reach 400%. To put that in perspective, the average annual percentage rate (APR) on a secured loan is less than 10%, while the average APR on the most costly secured loans is about 13%. 

If you need cash instead of a bank transfer, you may have to pay additional costs for your logbook loan. If you decide to get your loan money in cash, certain lenders may charge you a fee of up to 4% of the loan amount. 

Do I need good credit for a logbook loan?

A low credit score is not always a dealbreaker when applying for a logbook loan.

If you are unable to repay your logbook loan, the lender might take possession of your vehicle as collateral.

This may explain why they are prepared to provide loans to applicants whose FICO ratings are lower than those required by traditional banks. 

Getting a logbook loan with negative credit is possible, but it comes with a lot of risk and should be avoided if at all possible. You might see your credit score tumble even lower and lose your automobile if you fall behind on payments. 

Summary…

Defaulting on your logbook loan payments might result in the total loss of your vehicle.

And because of the risk involved, the interest rates on logbook loans are usually rather high. The average annual percentage rate for a logbook loan is close to 400%, as reported by the Financial Conduct Authority.

The typical annual percentage rate (APR) on an unsecured loan, according to the Money Advice Service, is closer to 12%.

This means you can end up paying more for your logbook loan than you would for any other kind of loan.

It's important to note that your credit history is considered when determining the interest rate for an unsecured loan. Therefore, if you have poor credit, unsecured loans may come with exorbitant interest rates.

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