What is a logbook loan and what are the risks?
If you need money quickly and own a car, you may be debating a logbook loan. They’re often pitched as an easy solution to getting money when banks or other lenders say no. But, in reality they could be one of the riskier ways to borrow money.
But how do logbooks work exactly? We’ve covered all you need to know, including the pros and cons and what alternatives you may want to think about before making a decision.
What are car logbook loans?
Logbook loans are a type of high-interest secured loan where you borrow money against the value of your car. You can keep driving your car, but you sign a legal document called a ‘bill of sale’ which temporarily transfers ownership of your car to the lender.
Once the loan is fully repaid, ownership is transferred back to you. But, if you don’t pay your loan, they may repossess and sell your car to get the money.
Because the lender has the security of the car, logbook loans are sometimes used by people with bad credit who might have been turned down for a traditional loan.
Approval for a logbook loan depends on your circumstances and ability to afford the repayments, and acceptance is never guaranteed.
How do logbook loans work?
So, how do logbook loans work in practice?
First, you apply with a lender and provide details about your car.
You’ll usually have to give your car’s logbook (the V5C) to prove you’re the registered keeper.
The lender then values the car and will offer you a loan based on that value.
If you accept the offer, you sign the bill of sale and receive the money.
You then repay the loan in monthly instalments, plus interest.
During the loan period, you must:
Keep the car insured
Maintain it in a good condition
Make repayments on time
If you miss payments, the lender may be able to repossess your car. The exact process depends on your agreement and your circumstances.
Can you get a logbook loan on a financed car?
In most cases, no, you can’t get logbook loans for a car on finance. If you only owe a small amount and your agreement is ending, some lenders may consider it, provided you get your current lender's approval, but this is not guaranteed.
Whether you’ve got a HP or PCP deal, if you have a car on finance, the finance company owns it until you’ve paid it off. Even if the V5C is in your name, the car isn’t yours. Some specialised lenders may help you clear the old finance using the new loan, but you must be able to afford both payments, with the new loan secured against the car once the old loan is settled.
The pros and cons of car logbook loans
Like any decision, it’s important to weigh up the pros and cons of logbook loans to help you make an informed decision.
The disadvantages of logbook loans
Logbook loans may be risky and expensive. The main disadvantages include:
Your car could be repossessed if you miss payments.
You temporarily give up legal ownership of your car.
Interest rates are often high compared to other loans.
Extra charges and fees may be added if you fall behind.
Repayment periods can be short, which puts pressure on your monthly budget.
These risks could be serious if you rely on your car for work, childcare, or everyday life. Losing it could affect far more than just your finances.
The benefits of logbook loans
Despite the downsides, there are reasons why some people still choose logbook loans:
You could get access to money quickly, sometimes within hours.
Approval may be easier if you have bad credit or refused a traditional loan.
You’re allowed to keep using your car while repaying the loan.
The application process is often simple and involves less paperwork than traditional loans.
While these benefits can seem appealing, they need to be weighed carefully against the risks.
Are car logbook loans a good idea?
For most people, logbook loans may only be worth considering as a last resort. The high interest and risk of losing your car can create much bigger issues later.
If your finances are already tight, the repayments could quickly become unmanageable. And because your car is on the line, the consequences of missing payments could be much more serious than with many other types of borrowing. You may find it safer to explore other options first, even if they take a bit longer.
Alternatives to car logbook loans
Before looking into a logbook loan, there are other routes worth exploring first. There may be safer options available. These include:
Government budgeting loans or advances, which may be available if you receive certain benefits and usually come with little or no interest.
Salary advance schemes through your employer, where you could access part of your wages early and repay it from your next payday.
Credit union loans, which often have lower interest rates and are designed to be more affordable for local members.
Borrowing from friends or family, providing it doesn’t strain relationships.
If you’re struggling with debt, you can also speak to free, independent debt advice services like StepChange or Citizens Advice before taking on more borrowing.
The takeaway
Ultimately, car logbook loans can seem tempting, especially for people with bad credit who need a loan quickly. But, the risks are important to consider carefully. Interest rates are usually high, and your car is at real risk if you fall behind. Before going ahead, it good idea to look at safer alternatives first.
Disclaimer: Car Finance 247 Limited is a credit broker, not a lender. Finance is subject to status and affordability. Terms and conditions apply.