Logbook
loans have become a lot more popular as a source of short term finance for
people with bad credit of late but there are still some people who don’t know
that much about this new finance option.
History of Logbook Loans
Logbook
loans have been around since the late 1990s in the UK. They’re also common in
the US where they’re known as Car Title Loans and where it’s estimated that
there are over 7000 lenders lending some $1.6 billion of loans.
Needless to
say the numbers are somewhat smaller in the UK but there are still a number of
logbook loans lenders in this country and, as you’d expect, some are better
than others.
The loans
have been the subject of some bad publicity that mainly revolves around cars
being repossessed and clearly this is a danger for a facility that is secured against a car. Whilst there are always two sides to the argument and the
lenders will say that the publicity has been generated by people who never
intended to repay in the first place, there are clearly lessons that can be
learned on both sides.
The main
lesson is that ability to repay is the key to a logbook loan and if you don’t
have repayment options then don’t take out a logbook loan in the hope that
something turns up.
How Logbook Loans Work – The Legal Stuff
Logbook
loans are based on a 19th Century legal document called a Bill
of Sale. Through this a
borrower (known in the Bill of Sale as the “seller”) evidences that he or she
has sold the vehicle on a specific date and at a specific location to the
lender (purchaser) for value received (the loan).
The Bill of
Sale is held as collateral security for the loan and is only enforced if the loan terms are
breached.
Technically
the Bill of Sale means that the logbook lender is the owner of your car while
the loan is outstanding and the Bill of Sale is registered with the High Court
in London for their protection.
How Much Can I Borrow With A Logbook Loan?
Well firstly
you’re limited by your ability to repay the loan but assuming the repayment
source is clear…
Secondly
you’ll be limited by the value of your car with a maximum ceiling of 50% of the
value. If you’re dealing with a reputable loan company you should be able to
agree on a mutually acceptable valuer to get a fair valuation.
Finally
there are limits on the amount the loan company will advance with a minimum of
£250 up to a maximum of £50,000 (yes people with very expensive cars need
finance urgently as well!).
How Logbook Loans Work – The Practical Stuff
You’ve got a
vehicle (could be a car, motorbike, motor caravan, van or small commercial)
with no finance and you want a logbook loan. So how do you go about it?
Firstly you
have a choice to fill in an on-line form or telephone the logbook loan company.
In either case the process should take no more than a couple of minutes.
Everything at this stage is without obligation of course and there will be no
fees to pay.
If you fill
in the form the lender will call you back shortly afterwards and you can
discuss your needs there and then. The lender will then outline an offer to
you.
If you want
to go ahead the lender will meet you at a place of your choice and complete the
paperwork. You’ll need to bring some or all of the following (check with your
lender before setting out for the meeting):
The vehicle
The vehicle registration document (V5C)
A spare key
Your driving licence
Proof of address (two can be required)
Insurance certificate
MOT certificate (if the vehicle is over 3 years)
Bank statement
15 minutes
later and you should be able to walk away with the loan.
The lender
will hold onto the spare key and the V5 document until the loan is repaid but
you get to keep and drive the car.
Of course
it’s your responsibility to maintain and insure the car while the loan is
outstanding.
Who Is Eligible For A Logbook Loan?
The only
fixed criteria are:
You must be a resident of the UK
You must be over 18
You must be the legal owner of a car that’s free or nearly
free of finance
You must be in a position to repay the loan
Unemployed
people, self-employed people, tenants, people on benefits are all welcome to
apply logbook loans online and will be approved if they have the ability to manage the repayments
that are agreed.
A bad credit
history is not a problem as the lender is not there to judge you on your past.
In fact even a past bankruptcy is not a hindrance.
Are Logbook Loans Companies Regulated?
Yes – all
logbook loans companies are regulated by the Office
of Fair Trading (OFT)
under the Consumer Credit Act and must hold a current appropriate licence.
Apart from
this official regulation there is a body called the CCTA (Consumer Credit Trade
Association) that has a Code of Conduct that offers borrowers a great deal of
protection. All of the reputable logbook loan companies are members of the CCTA
and subscribe to the Code of Conduct.
Early Repayment
All
reputable logbook loan companies will encourage you to repay early if you can
and all should allow this with no penalty charges.
Free of Finance?
Logbook
loans are available for vehicles that are “free of finance” and specifically
that means that the vehicle must not be subject to a finance agreement – for
example an agreement that you took out from a finance company when you bought
the car.
Vehicles
purchased with bank loans or family loans are unlikely to be covered by a
finance agreement and will qualify for a logbook loan.
Logbook Loan or Payday Loan
Both logbook
loans and payday loans are intended for people who don’t qualify for finance
from traditional sources but logbook loans have certain
advantages:
They’re much cheaper than payday loans
They can be for higher amounts
You can get a logbook loan if you’re unemployed
You can borrow with a logbook loan for a longer period of
time
Defaulting On A Logbook Loan
I don’t
believe that anyone ever takes out a logbook loan with the intention of
defaulting but clearly circumstances change and logbook lenders are fully aware
that they’re dealing with a risky market.
That’s why
they charge a high rate of interest.
The one rule
that I’d recommend above all others with a logbook loan is to talk to the
lender if you can’t meet the repayments and don’t bury your head in the sand.
Logbook
lenders are there for the long term as they know that satisfied customers are
not only potential repeat customers but also more likely to recommend them to
others.
All
reputable lenders will first work with you if you fall on hard times and
reschedule the repayments so that you can afford the.
Unfortunately
if you still fail to meet the repayments or if you avoid contacting the lender
you are in risk of losing you car. That’s an undeniable fact of life and the
reason why we can’t recommend highly enough that you only enter into an
agreement if you can manage the commitment.
The Downside To A Logbook Loan
Logbook
loans are an expensive way to borrow, so if you have a cheaper option take it.
You should definitely explore all other options if you can.
If you
default on the loan you’re in danger of losing your car and if you depend on
your car for work or family reasons then this could be a major problem.
Summary
Logbook
loans are a useful way for people who don’t qualify for more traditional
borrowing to get a quick sum of cash to fulfil a pressing need.
They’re
expensive but on the other hand they’re fast and flexible although you’d be
advised to avoid becoming dependent on them.
But if you
take the cost into account when you take up the loan and if you can afford to
repay on (or preferably before) the due date then a logbook loan may well
be much better than the alternatives available to you.
