Thousands of individuals in the UK struggle to get approved for traditional loans or credit because of low incomes and poor credit history. This can be incredibly frustrating, especially if an emergency or unexpected expense arises. An alternative lending option to traditional loans is a secured loan, which uses some form of collateral or property as security against the loan amount, making you less of a risk to lenders.
One type of secured finance that is growing in popularity is logbook loans; these loans allow you to use a vehicle as security against the loan amount. If you are a vehicle owner, you can borrow up to 70% of your car, van or motorbike’s value and still continue to use the vehicle throughout the duration of the loan.
What is a logbook loan?
A logbook loan is a loan that is secured against your vehicle, meaning the logbook loan lender will legally own the car until the loan amount is fully paid back. During the loan period, you can continue to use the vehicle as long as repayments are being made as agreed. However, if repayments are missed, or you default on the loan, the lender can repossess the vehicle to cover the loan cost.
When you take out a logbook loan, you are required to give the lender your vehicle’s logbook or V5 document, as well as signing a bill of sale form which transfers ownership of the vehicle to the lender temporarily.
A bill of sale is necessary as it gives the lender security over the loan amount. It means the loan provider is the legal owner of the vehicle during the duration of the loan. Law only recognises a bill of sale if it is registered with the High Court. If the lender does not register the bill of sale, then they must get the courts approval in order to repossess the vehicle.
You can check If a bill of sale has been registered with the high court by sending a written application to the Royal Courts of Justice in London, although there will usually be a cost involved. If you default on your logbook loan or break any terms within the loan agreement, the lender has the right to serve a default notice on you under the Consumer Credit Act 1974. If you do not rectify the issues within the stated time frame on the default notice, then the lender will be completely entitled to take possession of the vehicle and sell it on to cover the loan amount.
Logbook lenders will run a HPI check on the vehicle to determine its value, if it is free from any other finance and that the borrower is the registered owner. Some loan providers may run a credit check to establish your financial circumstances and likeliness to keep up repayments. However, other logbook loan lenders don’t require credit checks.
A large number of logbook loan lenders operate online with quick and easy application processes; some can even complete a logbook loan application and give a decision in a matter of hours. Funds can often be released to a bank account in the same day as the application is approved, and some lenders provide the option of giving funds as a cheque or even cash.
Logbook loans are only available in England, Wales and Northern Ireland. Scotland does not offer logbook loans as bills of sale are not legally binding in Scotland, often similar finance options such as hire-purchase or conditional sale are offered instead but be careful to check exactly how they work and what is involved with these types of loans.
If you default on the loan and the vehicle is repossessed and sold, if the amount the car is sold for is less than the amount you owe, you will still be liable to pay back the remaining balance. The lender will be entitled to take you to court to get the loan repaid. Always make sure you can make the loan repayments to avoid getting into financial difficulty. To get an estimate of costs use this logbook loan calculator so you can see how much the monthly repayments will likely be.
Who can get a logbook loan?
To be eligible for a logbook loan you must be over the age of 18, the legal owner of your vehicle and be named on the vehicle’s V5C registration document or logbook. As long as you fit this criterion, you are eligible to apply. As they are a secured loan, most logbook lenders do not require a good credit history, and some won’t run a credit check at all.
Usually, individuals with bad credit such as previous defaults and CCJs will be considered for a logbook loan, although interest rates may be high. To apply for a logbook loan, you will need to provide personal details such as address and financial information including income and expenditure. While many lenders do not run a credit check to determine your ability to repay the loan, you should personally ensure you can keep up the repayments before making a logbook loan application.
To get a logbook loan, you must be the legal owner of a vehicle, but the type of vehicle that is eligible for this type of finance is broad. You can take a logbook loan out against:
If you currently have any other finance outstanding on the vehicle, then it is unlikely to be accepted for a logbook loan. Some lenders will consider a vehicle with outstanding finances if the finance term has nearly finished. The vehicle will also need a valid MOT, be worth at least £1,000 and less than ten years old to be eligible for a logbook loan. This criterion can vary between lenders so be sure to check all the details of various providers before applying.
A lot of logbook loan lenders do not require a credit check as the loan is secured against the vehicle being used, this makes them a good option for those with bad credit history, CCJs or bankruptcy.
When can a logbook loan be used?
Logbook loans are designed to be a short-term financing option, with most lenders offering a loan period of between 12 and 36 months. They can be an option for individuals who struggle to get approved for other finance options such as credit cards or payday loans. As they a short-term finance solution, they are ideal for covering sudden emergencies until payday or other unexpected expenses that you don’t immediately have the funds available for.
If you need to borrow a larger amount but can’t obtain an unsecured bad credit form of finance, then a logbook loan could be worth considering. Funds obtained from a logbook loan can be spent on anything you need, there are no restrictions on what you can use the cash for.
Although logbook loans are designed to be a short-term finance solution, the terms offered are usually much longer than you would get with a payday loan. Usual repayment periods for a logbook loan are between 12 and 36 months, giving you longer to pay the funds back and get your finances in order.
How much does a logbook loan cost?
When it comes to logbook loans, the amount you can borrow is generally much higher than with payday loans or personal loans; some providers will lend up to £50,000 as a logbook loan. The amount you can borrow is completely dependent on the value of the vehicle, with most lenders offering a minimum of £500.
Typically you can acquire up to 70% of your vehicles value, although some lenders will offer up to 100% of the value. If you choose a lender that does require a credit check, the outcome of this can also affect how much you can borrow, along with your income and existing borrowing.
Logbook loans typically come with high-interest rates because they are a short-term solution. There is no limit on how much interest a lender can charge for a logbook loan, and most providers will offer between 100% and 200% Annual Percentage Rate (APR). However, some may charge over 400%.
All logbook loans are expensive in terms of interest, and some may also charge additional fees for early repayments. The interest rates offered by different logbook loan lenders varies hugely across the market, so be sure to shop around to find the best deal. The lower the APR and quicker you pay off the loan, then the less interest you will end up paying on top of the original borrowed amount.
Many logbook loan providers require the repayments to be made on a weekly basis, and some do not offer a direct debit repayment service which can make keeping up with the repayments difficult. Some agreements provide a setup, so you only repay the interest charges for the duration of the loan, and then in the final month, you will be expected to repay the amount of money that was originally borrowed. Be sure to properly understand how the agreement works and that you can make the repayments before taking out a logbook loan.
Logbook loans can be a very expensive way of borrowing, with many lenders offering an APR of 400% or higher. For example, you could borrow £1,500 and pay back £55 a week for 78 weeks; you would repay a total of over £4,250. That means you are paying more than £2,750 in interest alone. Be sure to compare all the options available to you before deciding on a logbook loan.
Advantages of logbook loans
Logbook loans have become increasingly popular in recent years, as more and more borrowers are turning to this type of secured finance as a quick fix for cash flow problems. There are a number of reasons why logbook loans can be a great solution for many individuals looking for access to funds fast, here are the top advantages of logbook loans:
The application process for a logbook loan is usually very quick and simple. They can generally be completed online and providing you have all the required documentation to hand during the application process; you can often get approval within hours. As there is now a considerable amount of competition within the lending industry, lenders are under more pressure to provide convenient and hassle-free services to win over customers.
Poor Credit Considered
This is probably one of the most significant advantages of logbook loans. Many lenders do not require a credit check to approve the loan, and individuals with bad credit, CCJs or even bankruptcy can be successful in getting a logbook loan. As long as you are the legal owner of a vehicle to use as security against the loan amount, then you are likely to find a logbook loan lender that will approve your application.
As long as you meet all the requirements and have the right documents to hand when applying, your application process will likely be approved very quickly. Many lenders boast same day approval processes, and some are even able to release the funds within hours.
Logbook loans base the amount that can be borrowed on the value of the vehicle being used as security, meaning there is a lot more flexibility in the loan amount that could be offered. Most providers will allow you to borrow anywhere between £500 and £50,000 depending on the value of your car. Often, you will be able to acquire a more substantial amount as a logbook loan than you would as an poor credit unsecured loan. On the other hand, if you only want to borrow a small amount of cash, logbook loans have the flexibility to do this as well.
In addition to the loan amount being flexible, the term of the loan can also be suited to your needs. Some lenders will offer loan terms as short as three months, while others provide longer terms up to 36 months. These flexible terms make logbook loans suitable for a broader range of financial needs than alternative short-term finance options.
The majority of logbook loan lenders have very simple criteria to meet to be able to apply for finance. As long as you are over the age of 18 years old and the legal owner of a suitable vehicle, then you can apply for a logbook loan.
Some lenders may allow you to settle your loan earlier than the scheduled repayment date with no additional fees. However, some lenders may charge you. Be sure to properly understand the loan terms before going ahead.
Disadvantages of logbook loans
Even though logbook loans have risen in popularity in recent years, however, do come with some criticism. As with any type of finance, logbook loans are not without their negatives, the main disadvantages to be aware of include:
The biggest downside is the high-interest rates and how expensive they can end up being. Compared to personal loan alternatives, logbook loans charge significantly more interest, which is often seen as excessive by financial experts and borrowers. With the representative APR sitting at around 400%, it is several times more expensive than other loan options.
All secured loans come with a risk of repossession and logbook loans are no different. It is a worst-case scenario, but for many borrowers becomes a reality as the high-interest rates can make keeping up with repayments a struggle. Logbook loans require you to sign a bill of sale for your vehicle over to the lender, meaning that they are the legal owner can repossess the vehicle at any time.
If you have a car that already has a form of finance out on it, you will not be able to use it as security for a logbook loan. Your vehicle must be finance free, or at least near the end of its current finance contract to be eligible for logbook finance.
Impact Your Credit Score
While most logbook loan providers don’t require you to have a good credit score to take out the loan, that doesn’t mean they won’t impact your credit score if repayments aren’t kept up. If you fail to make the repayments and end up defaulting on your logbook loan, it will have a huge impact on your credit file.
It can be easy to find yourself in a debt trap with high-interest finance options such as logbook loans. If you already have a poor credit score, it can be easy to fall into the trap of borrowing more money to keep up with your financial needs, however making the additional repayments will result in further debt and more issues. It is essential to make sure only to borrow what you really need and can reasonably afford to pay back.
Repossession is generally the last resort for a lender and will only happen if you have missed a number of repayments. Your lender will also contact you beforehand to try to arrange an alternative to repossessing your vehicle. If you do miss a payment, don’t panic that your car will be repossessed immediately, contact your lender and arrange the next repayment.
Logbook loan alternatives
A logbook loan may seem like a tempting option if you are in need of some quick cash and have a poor credit rating, but there are a range of alternatives that should be considered before a final decision is made.
0% Money Transfer Credit Cards
If you need funds quickly and don’t want to pay over the odds in interest, consider a money transfer credit card. Many credit card providers offer an interest-free period on money transfers. They work similarly to balance transfer cards; however, they allow you to send funds directly to a bank account, meaning you can spend the money on whatever you please.
Some money transfer credit cards offer 0% interest for as long as three years, and the only additional charge is a small money transfer fee of up to 4% of the balance. This might not be the best option for those who have a bad credit history or previous defaults or bankruptcy, as they may struggle to be approved for a credit card.
An option for individuals with either a poor credit history or no credit history at all is a guarantor loan. This type of finance uses a friend, family member or another individual with a good credit score to be a guarantor on the loan amount. They must be at least 18 years old, in full-time employment, and not someone you share a bank account with. Popular guarantor lenders include TrustTwo and Uk Credit.
It is important to remember that your guarantor will be liable to pay back your loan should you fail to make the repayments, so be really clear that you both fully understand the terms of the loan before applying. Interest rates on guarantor loans may still be higher than other options, however, are usually significantly cheaper than logbook loans.
If you are on a low income and need to borrow a small amount of money, it might be worth looking into a credit union loan. Credit unions are community savings and loan cooperatives where members join their savings to help each other and run the union. Interest rates are low, and legally can’t be higher than 3% a month. There are more than 40,000 credit unions across the globe, and to be able to use their services you will need to be a member of the credit union.
Overdrafts a feature of your bank account that can be used to borrow a certain amount of money from your bank. They are good for acting as a buffer if you over spend one month, for borrowing a certain amount of money on a short term basis or covering an emergency expense.
The interest rates and fees on overdrafts depends on the bank and your financial circumstances. Some banks mays provide an overdraft to an individual with poor credit, but it is best to discuss your options with your bank.
When deciding if a logbook loan is the right choice for you, carefully consider if you can risk losing your vehicle of something goes wrong. For example, if you need your car to get to and from work every day, not having it could impact your daily life and income.
How to find the best logbook loan deal
As with any type of loan or finance, finding an affordable logbook loan deal is possible but takes a bit of time and effort. Logbook loans are becoming increasingly popular, with more and more lenders offering them. It is essential to remember that the cheapest advertised logbook loan does not always mean the best deal, and it all depends on the lenders criteria and your own financial situation. Follow these steps to help find the best logbook loan deal for you:
It is essential to shop around for the best deal when choosing a logbook loan, compare logbook loans and the various options available to you. While shopping around, compare all the various factors such as APR, loan amounts and repayment terms.
Understand Representative APR
All logbook loans will be advertised with a representative APR, this is a good indicator when shopping around and comparing options, but it is essential to properly understand the numbers you are looking at. APR stands for Annual Percentage Rate and indicates a rough estimate of the cost of the loan for one year, including interest rate and additional fees and charges.
Ask for Recommendations
Sometimes the best way to find a good lender is by word of mouth. Ask around friends and family if they have ever taken out a logbook loan and which lender they chose. They might be able to recommend a great lender that you hadn’t considered, or they might warn you off a lender they had a poor experience with; either way, their opinions can help you find the best deal. Check out reviews from previous customers and their online reputation.
Be Aware of Hidden Fees
Some logbook loan lenders will add additional fees and charges that might not be clear before you apply. Always thoroughly check the small print of any loan before making a decision, and if you still don’t fully understand the fees involved then ask the lender to explain them properly.
There are lots of comparison and reviews available to help you find and choose the best logbook loan for you. Use these websites to shop around and discover the current offers available. As with any type of finance, the various deals and offers available are constantly changing, so spend some time looking over what is being offered currently.
If you do decide a logbook loan is the right option for you, be sure to check the lender is a member of a trade body and complies with a code of practice such as the Financial Conduct Authority (FCA).
How to apply for a logbook loan?
Once you have considered all your options, shopped around and chosen a logbook loan lender that suits you, the next step is to apply for the loan. The application process will vary between lenders, but typically you will be able to apply for a logbook loan online easily and quickly. Before beginning the application process, double check you have all the required documentation to hand; your lender will be able to tell you exactly what you need to provide.
In general, you will need to prove you are the legal owner of the vehicle, have details of your UK bank account, have details of your income and have your vehicle ready to be inspected by the loan provider. Some lenders will also require you to hand over your spare key during the loan duration.
Provided you have all of this information available when applying; you will likely get a decision instantly. Before starting the application process, make sure you have these documents available, as well as any others that your specific lender might require:
- Your vehicles V5 logbook
- MOT, tax and insurance documentation
- Photo ID such as driving license or passport
- Proof of address such as a utility bill from the last three months
- Bank statements for the last two months
- Payslips for the last two months
- If you are self-employed, you may need to provide invoices and proof of income for the last two months.
Most online logbook lenders are able to give an instant decision on applications, and some will be able to release the funds the same day. Other providers may allow you to complete the application process online and then finalise their decision either over the phone or in person with an advisor. A lot of lenders will organise for someone to come and inspect the vehicle in person, and collect the logbook and spare key if required, although this step varies between providers.
Most logbook lenders will provide details of the application process on their website for you to check through before going ahead. Read this information carefully and make sure you have all the required documentation with you when applying to avoid any delays.
Is a logbook loan right for you?
Logbook loans are a serious commitment that can put your vehicle at risk of repossession and negatively impact your credit score. Carefully consider all of your options and if you really need a logbook loan in your current situation. If you do decide a logbook loan is the right option for you, be sure to shop around and find the best deal available that suits your financial circumstances. Speak with your chosen lender to properly understand the costs and risks involved in the loan before applying.