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Logbook Loans: The Ultimate Guide

12.01.2021 by Paul H

Logbook loan guide

What is a Logbook Loan?

The original logbook loan is a type of loan that allows vehicle owners to release the equity from their car, bike or van providing it is free of finance. The vehicle owner will provide their asset as security against the loan until it is fully repaid.

The main advantage for the borrower is that they can continue to use their vehicle for the duration of the loan, providing they keep up with loan repayments.

Original logbook loans use a Bill of Sale to secure the vehicle to the loan and the borrower will then sign as a consumer credit agreement.

Please consider very carefully before completing any credit agreement. Each financial decision must be considered to ensure it is correct for your personal circumstances.

The logbook loan will be secured against your vehicle and missing payments could put the car at risk of repossession. Therefore, take your time to read the contract to understand the total cost of credit and confirm the loan is affordable within your current monthly expenses.

Contents

  • How do Logbook Loans Work?
  • Applying for a Logbook Loan
  • Receiving Your Logbook Loan Funds
  • Repaying your Logbook Loan
  • Total Costs of a Logbook Loan
  • Things to Consider Before Taking out a Logbook Loan
  • What Happens if I Can’t Pay Back my Logbook Loan?
  • Alternatives to a Logbook Loan


How do the Original Logbook Loans Work?


A logbook loan allows a borrower to withdraw cash against their car, van or bike which is being placed as security against the loan. This type of loan is often used by people who may have a poor credit score and without needing to use a guarantor.

When a borrower completes a logbook loan, the ownership of the vehicle transfers over to the loan company for the duration of the loan. The borrower will surrender their V5 document to the loan company, however, they can continue to drive the vehicle whilst the loan is still live.

Once the loan is fully repaid, the loan will be set aside, vehicle ownership will transfer back to the borrower and the V5 will be returned.

According to a recent Law Commision study on Bill of Sale lending, there has recently been an increase in the number of high street and internet-based logbook loan companies offering customers logbook loans using the archaic and wholly unsuitable Bill of Sale and the 1974 Consumer Credit Agreements.

Such companies may offer a quick loan often using high-interest rates, undisclosed fees and often no protection from repossession should they fall into arrears.

Most companies offer the original logbook loans from £500 to £50,000 with no credit checks and based upon the car value. In most cases, they will lend up to 65% of the vehicle's trade value as determined by an online independent car valuation expert.

When a borrower takes out a logbook loan, it will require a member of staff from the company to visit their home or place of work for up to 90 minutes to complete an often public and physical vehicle inspection. There the lender will complete the loan documentation and collect the vehicle’s logbook or vehicle registration document. In addition, the lender will require the loan documentation to be witnessed by a 3rd party.

Applying for a Logbook Loan

In England, Wales, and Northern Ireland, a Logbook Loan comprises of a Bill of Sale agreement and Consumer Credit agreement securing the loan on the vehicle. In Scotland, however, these documents are illegal and therefore not used.

If the borrower lives in Scotland, they will receive a legally-binding ‘New Logbook Loan’ from lenders such a LoanOnYourCar.com. This new Logbook Loan would be set-up using a Hire Purchase Agreement, which offers the borrower greater protection from repossession, especially from private land.

The borrower is still actively encouraged to check carefully as to how it works. The ownership of the vehicle will still transfer to the lender for the duration of the loan and revert when the loan is settled.

Registering the Bill of Sale

When a borrower currently completes an original logbook loan by signing the Bill Of Sale Agreement and the Consumer Credit Agreement, the ownership of the vehicle is transferred to the lender. The documents will need to go to a local firm of solicitors to be sworn and then submitted to the Royal Courts of Justice within seven days to appear on the Bill of Sale register for the loan to be legally binding.

If the loan is sworn outside of the seven days the Bill of Sale will not be valid in securing the loan on the vehicle.

If it’s not registered, the lender must get a court’s approval to repossess the vehicle. The borrower can check if a Bill of Sale is registered by making a written application to the Royal Courts of Justice in London. There is usually a fee to pay.

If the loan term is longer than five years, the Bill of Sale must be re-registered every five years to remain valid.

The borrower can make a written application to the Royal Courts of Justice in London to check if a Bill of Sale has been put on the register. There is a fee to pay. If you go to the court, you will be charged for the time that you spend examining the register. Please contact:

Royal Courts of Justice
Queen’s Bench master’s support section
Royal Courts of Justice
Strand
London
WC2A 2LL
Phone: 020 7947 6000
www.gov.uk

If the Bill of Sale is not made correctly, it is not effective as security and the lender is threatening to take the vehicle, the borrower can challenge the Bill of Sale. Send a letter to the lender by either registered post or recorded delivery. Explain why you think that the Bill of Sale is not effective. Ask the lender to confirm that they understand that the Bill of Sale does not secure the goods. Ask the lender to confirm that they will not attempt to take your goods.

If the lender agrees that the bill of sale is not effective, ask them to confirm this in writing. You should give the lender the opportunity to tell you they will not take the goods before taking any further action through the court.

Even if the bill of sale is not valid, you will still have to repay the money you owe on your credit agreement, assuming that the credit agreement has been made correctly.

A lender can apply to register a bill of sale after the seven-day time limit. You may be able to challenge this with legal support. If you do challenge a late registration in the High Court and lose, you may have to pay very high extra costs.

For a detailed Bill of Sale Fact Sheet, please visit the National Debtline Bill of Sale page

Receiving Your Logbook Loan Funds

On completion of the original Logbook Loan, most lenders will pay the funds directly into the borrower’s UK bank account within 48 hours. This is normally done by faster money bank transfer and will appear as cleared funds within two hours.

A small number of unethical lenders have been known to charge up to 4% of the loan fee for a ‘quicker cash service’. Please be aware of this and do not accept this charge as it should be a free service.

Repaying your Logbook Loan

Under the terms of the Consumer Credit Agreement, the borrower has the right to cancel the logbook loan agreement within 14 days. If the borrower cancels, they must return all monies borrowed within 30 days of notifying the lender, plus accrued interest up to the date on which the repayment is made.

Most borrowers will set-up loan terms from 18 – 60 months, although please be aware some lenders may charge penalties for settling the loan early. By law, there is no minimum period a borrower has to keep the loan live. The borrower has every legal opportunity to settle the loan early and request a redemption statement and a re-calculation of the interest to reflect the early settlement. This will vary depending on the method of interest used to calculate the loan repayments.

By law, the borrower is allowed to make an unlimited number of capital overpayments. On receipt of a capital overpayment, the borrower must reduce the original loan principal by this amount and then recalculate the new loan repayments commencing from the next repayment due date.

Borrowers should consider the two methods of interest calculation Logbook Loan Lenders might use before selecting their preferred lender: -

Front Loaded

The most common and least advantageous for the borrower is the Front-loading method of calculating interest. This method is used widely across the whole finance sector by almost all logbook loan, personal loan, car finance and mortgages lenders. The reason it is preferred is that it is more profitable for the lender as it generates more interest.

With the front-loading method, the borrower takes the majority of the payment in the earlier months towards interest payments and only a small amount toward capital repayment. Towards the end of the loan term, the opposite is true, and most of your payment will go toward the principal balance with little interest repaid

Fixed-Rate

Used by a handful of original logbook loan lenders. This method allows the borrower to calculate the interest rate percentage based on the total loan amount borrowed and then is evenly split over the term. This allows the borrower to repay more capital from month one.

The industry regulators consider this method as the fairer model for calculating and paying interest every month on reducing outstanding balance.

How Much Does a Logbook Loan Cost?

Representative APR for the original style logbook loans range from 209% to 500% depending on the lender, the interest rate charged and the loan term. When applying for a logbook loan, the borrower should consider that this can be an expensive form of borrowing if the loan is held for the full term. Consideration must be given to exactly how the loan will be rapid to avoid excessive interest charges.

Typically, most logbook loans are held for between three to seven months and therefore can provide an overall cost-effective short-term solution. Borrowers are encouraged to ask the lenders to confirm:

  • Type of interest – Fixed or Flat Rate
  • Minimum period
  • Hidden fees or charge
  • Early Settlement charges
  • Are overpayments allowed
  • Weekly or monthly repayments
  • Charges in the event of a default

Representative Example:

For example - if you borrow £1,000 over 12 months at a flat rate of 120% per annum [fixed] with a Representative 389.20% APR and make 18 monthly payments of £466.67, that makes a total amount repayable of £8420.00 . The total charge for credit is therefore £5,400.


Things to Consider Before Taking Out a Logbook Loan

Before a borrower applies for a logbook loan, these are the main things to consider:

  • In order to qualify for a Logbook Loan, the borrower must be the legal owner of the vehicle.
  • The vehicle must be free or almost free of finance in order to qualify. Even if the vehicle has existing finance against it, you might still be able to get a logbook loan, but generally only if your existing loan agreement is paid off from the proceeds of the new loan.
  • The vehicle typically must have a minimum trade value of £1,500 in order for the lender to provide a Logbook Loan.
  • The vehicle must have a valid MOT and full comprehensive insurance, otherwise the lender will decline the Logbook Loan application.
  • The vehicle must be registered in a private individual name, company vehicles are not acceptable for a Logbook Loans.
  • The borrower must ensure they are able to afford the repayments as the Logbook Loan is secured against the car and could be at risk of repossession if the loan is not repaid on time.
  • Whilst the logbook loan is active, it remains the borrower’s responsibility to comprehensively insured and fully maintain the vehicle.
  • The borrower cannot sell the car whilst the logbook Loan is active, without the lender's approval.
  • When the logbook loan is paid-out the lender will place a finance interest on the industry finance register to notify other finance companies of an outstanding finance agreement on that vehicle.
  • Some lenders will complete a credit check with every logbook loan application, and this will sit on the borrower’s credit file and be visible for other lenders to see an application or a loan was made.
  • The APR can be very high, so borrowers are advised to repay the logbook loan as quickly as possible.
  • Lenders may demand weekly or monthly payments on the logbook loan repayments, making it difficult to manage your monthly finances.
  • Some lenders will take logbook loan repayments by standing order and some via Direct Debit. Please be aware with Direct Debit as this can be very expensive if a payment fails as charges by the bank and lender may apply.

What Happens if I Can’t Pay Back my Logbook Loan?

If a borrower gets into difficulty paying the loan, the lender must look at options to see how the borrower can repay the debt. The lender should only repossess the car if they cannot agree on a repayment arrangement with the borrow to clear the arrears.

Lenders should not take a vehicle away unless the borrower owes an amount equal to at least the last two monthly payments. If the borrower is paying weekly, the lender should not take your car away the arrears are equal to the last four weekly payments.

According to the recent Law Commission study, the original logbook loan using the Bill Of Sale is antiquated and fraught with problems, both legally and practically. The Bill of Sale, allows the vehicles to be without a court order, offering virtually no protection for borrowers.

Providing the lender has complied with the law and served the relevant logbook loan default notices, they are able to employ an FCA-regulated bailiff to visit a borrower’s home or place of work and repossess the car, even off private land.

This form of repossession is very expensive and can cost several hundred pounds, especially if a flatbed tow truck has to be used and keys need to be cut. In this event, the costs will be passed through to the borrower. If repossession is underway the borrower is advised to work with the lender to minimise costs.

Can I Sell my Car with a Logbook Loan?

It is not acceptable for the borrower to sell the car to an innocent third party and keep the proceeds of sale and not repay the lender. The car would have been sold without the lender's permission and the third party will have no protection even though they have unwittingly bought goods subject to the Bill of Sale. The lender will seize the car and take it to auction.

If the borrower wishes to sell the car, they are advised to contact the lender and sell the car with their permission and assistance to clear the debt and retain the further equity without acquiring additional charges.

When the borrower's account goes past the mandatory arrears period and the correct notices have been served, the lender has the legal right to employ bailiffs to seize the vehicle. The law then requires the lender to store and not sell the vehicle for 14 days. This is to give the borrower the time to make an offer to try to keep the car. If the car is sold, it should be sold at auction to receive an open market valuation at arm’s length to then try and achieve the highest possible market price. When the car is sold, the lender will deduct the outstanding balance and fees and return the difference to the borrower.

Please note, if there is a shortfall from the sale of the vehicle the lender can seek a court order to cover any shortfall and ask the court to secure any debt left after the car has been sold. This can be done via a money order secured against your home or an attachment of earnings.

Alternatives to the Original Logbook Loan

In June 2019, LoanOnYourCar.com launched a 'New Logbook Loan' product - a fairer alternative to traditional logbook loans. The New Logbook Loan still allows the borrower to retain full personal use of their vehicle for the duration of the loan, however it is secured against the car using a Hire Purchase Agreement regulated by the Consumer Credit Act. This is compared to original logbook lenders securing the car against the loan via the Bill of Sale Act of 1882.

Ethical & Responsible

LoanOnYOurCar.com has established itself as an ethical and responsible New Logbook Loan Lender. We only use a regulated Hire Purchase agreement to secure loans on cars to provide our customers with greater protection.

Proven and Preferable Solution

LoanOnYOurCar.com are securing the Logbook Loan throughout the UK using a Hire Purchase Agreement as regulated by the Consumer Credit Act 1974, which allows for the provision of a Scottish Logbook Loan.

The Gold Standard

LoanOnYOurCar.com is committed to the highest levels of professional care, with its reputation and integrity being paramount.

Regulated and Accredited

As a lender, LoanOnYourCar.com is regulated by the FCA and is a fully accredited member of the Consumer Credit Trade Association and fully complying with its 'Code of Practice'.

More importantly, our business ethos and culture are premised on the principles of 'treating all customers fairly'. LoanOnYourCar.com will be transparent, honest, and fair. Every loan will be subject to affordability and suitability checks to ensure the borrower is able to maintain the loan repayments.

Are You Struggling with Your Debt and Need to Speak to An Expert?

If you are struggling to manage your debt, a logbook loan may not be the correct option for you. However, you could talk to someone today, online, by phone. To help you find the correct person, we have listed the UK’s free, confidential, debt advice services. All of which have dedicated and fully trained advisers who can help you start sorting out your financial problems.

Getting Help with Debt

If you are currently experiencing debt issues, please speak to a free debt adviser, who might be able to help you.

Where to Get Free Debt Advice

Don’t struggle on your own with debt, there are lots of free advice services available across the UK, you can find help in a way that’s best for you.

How will a Debt Adviser Help You?

These debt services are expertly trained to provide advice and guidance, they won’t make you feel bad or judge you. They will always listen to your problems and try to present you with solutions to manage your current situation. Most importantly they are there to provide assistance and present options to deal with debts that you might not know about.

Online Debt Advice Services

Online services provide safe, private, and secure personalised services, often 24 hours a day.

Debt Advice Foundation

The Debt Advice Foundation is a national debt advice and education charity offering free, confidential support and advice to anyone worried about debt.

StepChange

The StepChange advice tool has helped over 1.7m people. Create a budget and get a personal action plan with practical next steps.

National Debtline

National Debtline offers free debt advice online through its digital advice tool and its web guides, fact sheets and sample letters.

PayPlan

PayPlan's online debt solution tool, PlanFinder provides a personalised debt solution. It also offer free live chat and email support for immediate help.

Telephone Debt Advice Services

Telephone services are usually available weekdays, evenings and Saturdays and are perfect if you want to call from your mobile discreetly.

National Debtline

0808 808 4000

National Debtline has helped millions of people with their debts.

Money Adviser Network

Please use the link above to connect to an adviser

The Money Adviser Network offers free telephone debt advice backed by the Money Advice Service.

PayPlan

0800 280 2816

PayPlan's supportive, non-judgemental team of advisers help thousands of people beat their debts every year, and treat all of their calls with the strictest confidence.

Debt Advice Foundation

0800 622 61 51

Debt Advice Foundation is a national debt advice and education charity offering free, confidential support and advice to anyone worried about debt.

StepChange Debt Charity

0800 138 1111

StepChange is the UK's leading debt charity. They help change the lives of thousands of people every week. Get free, confidential advice and practical solutions to help you deal with your debts.