Logbook loans are a type of secured loan against the car that you already own, and are available in the UK with the exception of Scotland. The lender of the Logbook loan will have the legal title of your car until the loan is paid back. Whilst you can still drive your car as long as you make the repayments, the lender can take it away if you fail to make them.

Logbook loans are considered to be one of the more expensive and riskier types of loans. However, they can provide a quick solution for people who urgently need money. These loans are secured against your vehicle, which means that even if you have poor credit you’ll still have a chance at accessing the money you need (even if you’ve been rejected for other credit options in the past). However, because this is high cost credit, it’s important to fully understand the terms before entering into this type of agreement.

We’ll look at both the upsides and the downsides of logbook loans, so you can make a well-informed decision about whether this type of borrowing matches your financial needs and circumstances.

How Do Logbook Loans Work?

The lender secures the loan against your car’s value to reduce their risk of losing money if you are not able to pay it back (the car acts as a “guarantee” to the lender). This loan is different from traditional borrowing because the lender assesses your loan eligibility based on your vehicle’s value, rather than your credit history.

To secure the loan, you’ll need to hand over your vehicle's V5C document — or logbook — to the lender. This document is issued by the Driver and Vehicle Licensing Agency (DVLA), and serves as proof of the vehicle’s registration and the registered keeper of the vehicle. It is held by the lender as security until the loan is fully repaid. You still have possession of the car and can continue using it providing you continue to make repayments on time. You’ll still be responsible for running costs of the vehicle including insurance and MOTs.

You’ll also be asked to sign an agreement called a Bill of Sale and this temporarily transfers the legal ownership of your car to the logbook loan provider. A Bill of Sale agreement is not legally binding in Scotland so if you see a Logbook loan advertised here, it’s probably a different type of finance.

Am I Eligible for a Logbook Loan?  

To qualify for a loan using your car as collateral, you’ll need to meet the following criteria (this can vary by lender, so make sure to check out the specifics for each!)

• Be at least 18 years old
• Have an active UK bank account
• Be the legal owner of the vehicle you’re using as collateral - your name must be on the car's ownership documents
• Have the V5C logbook of the car
• Have ideally no outstanding finance on the car. If there is any left, it should be a small amount
• Have no other loans secured against the car
• Car must be roadworthy
• Have sufficient, provable income

What Documents Do I Need for a Logbook Loan?

1. The Vehicle’s Logbook (V5C document)

This document proves that you are the registered keeper of the vehicle. Lenders need this to make sure that the vehicle the loan is being secured on legally belongs to you as the borrower.

2. Proof of Insurance

The lender will need proof of valid vehicle insurance to ensure that the vehicle is protected against damage or loss. Keeping the vehicle insured remains your responsibility.

3. Proof of Identity (e.g., passport or driving licence)

The lender needs to confirm your identity as the borrower and to help protect everyone from the risk of fraud. It also makes sure that you are legally eligible to take out this type of loan.

4. Proof of Income (e.g., payslips or bank statements)

This is to show the lender that you have enough money coming into your account to meet the loan repayments. This also helps the lender calculate the loan amount and the repayment schedule.

5. Vehicle service history and MOT certificate

The service history and current MOT certificate are needed to make sure that the vehicle is in a good working condition, has been looked after and maintained properly. A well-maintained vehicle will have a better market value and could affect the amount of money offered to you as a Logbook loan.

Loan Terms and Repayments:

Logbook loans are usually between 18 to 36 months and can be repaid weekly or monthly. If the repayments are not collected by direct debit it’s important for you to make sure that they are made on time.

Amounts Available: The loan amount that can be borrowed through a logbook loan usually varies from £500 to £50,000 and will depend on the value of your car. Some lenders may offer you an amount of up to 50% of your vehicle's current market value.

What Can Logbook Loans Be Used for?

You can usually use the loan for whatever you like. There may be a few exceptions and you should check with the lender to see what they are.

Possible Upsides of Logbook Loans

Quick Cash for people who have difficulty in borrowing money

• Quick Access: Many lenders offer same-day processing, which means you can apply for a loan and receive the funds on the day. This may be particularly suitable for emergencies.
• Accessible with Poor Credit: Since the loan is secured against your vehicle, lenders are less concerned with your credit history compared to unsecured loan applications. This means that even if you have a poor credit score or a limited credit history, there is a chance for you to access money that you need.

Flexible Repayment

• Weekly Payments: Logbook loans often provide the option to make weekly repayments, which can be easier to manage compared to the monthly payments required by most other lenders. If you are paid weekly, this regular, smaller payment method may work better for you.
• Early Repayment Option: Many loans have a fee for early repayment, but logbook loans usually allow you to settle your loan early without any penalties. However, loan terms can vary, so it's important to check this with your lender!

Keep Using Your Car

• No Disruption: Even though you hand over the logbook of your vehicle to the lender as security against the loan, you continue to have full use of your car as long as you stick to the repayment schedule.

Risks and Considerations of Logbook Loans

Costs of a Logbook Loan/ High Interest Rates

• High APRs: Logbook loans are notorious for their high Annual Percentage Rates (APRs), often going above 400% and are often more expensive than Payday loans.

For example, borrowing £1,500 at rates like these over 18 months could result in total repayments of more than £4,250, which includes a huge chunk of money in interest alone.

• Risk of Further Debt: This makes logbook loans one of the more expensive borrowing options available and the risk is falling into a debt spiral to pay it off.

Risk of Repossession

• Losing Your Car: One of the biggest and immediate risks of a logbook loan is the possibility of your vehicle being repossessed. As the loan is secured against your vehicle, if you fail to meet repayment deadlines, the lender can take possession of your car. You don’t have the same protection as other loan agreements, such as, Hire Purchase.
• 14 Day Default Notice: Lenders do have to warn you before they repossess your vehicle. You will be given 2 weeks to catch up on any missed payments to stop this from happening.
• No Court Necessary: Lenders will have you sign a Bill of Sale when you take out a logbook loan. As long as they register this with the High Court they do not need to go to court to repossess your vehicle if you miss payments.
• Can’t Keep Up With Payments? If your car is repossessed, the lender is able to sell your car to pay off the money you still owe. If the value of the car does not cover the total amount, you will still likely be responsible for paying this amount off.

Impact on Credit Score

• Can Lower Your Score: While some logbook loans do not require a credit check, failing to repay can still impact your credit score negatively. If the loan is reported to credit agencies as defaulted, it could hinder your ability to secure future loans, obtain housing (including rental accommodation), or even affect employment opportunities in sectors where creditworthiness is assessed.

Limited Consumer Protection

• Levels of Regulation: Although logbook loans are regulated under the Consumer Credit Act, the protections offered are not as robust as with other more regulated financial credit products like Hire Purchase agreements and personal loans.

Alternatives to Logbook Loans

When considering your borrowing options, it's important to explore alternatives that might carry less risk and potentially lower costs than logbook loans. Here are a few to get you started:

• Unsecured Personal Loans: These loans do not require security, meaning you don't risk losing personal assets if you can't keep up with repayments. Lenders evaluate your creditworthiness and income, which can often secure you better interest rates.
• Credit Unions: As non-profit organisations, credit unions offer loans with lower interest rates and fewer fees than traditional banks. A credit union might be ideal if you’re on a low income and need to borrow money for a short time.
• Government Budgeting Loans: For people on certain benefits, these interest-free loans provided by the government can help cover emergency expenses.
• Borrowing from Family and Friends: You could consider asking family or close friends for a loan, which could be interest-free. But be careful - if you can't pay the loan back, it can ruin relationships.

While logbook loans can provide quick access to funds, they come with high risks and costs. Due to how expensive and risky logbook loans can be, they are best considered as a last resort after exploring all other available options. It's important to understand the full implications of taking out a logbook loan and ensure it is the right decision for your financial circumstances.