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Logbook loans

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Last updated: 24 August 2021

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Logbook loans are a borrowing alternative that’s available to people in England, Wales, and Northern Ireland. Quite simply, they are a ‘secured’ loan whereby you use your car as an insurance policy should you not be able to pay the loan back. You can still use the vehicle, but you technically won’t be the ‘owner’ as the ownership would be transferred to the lender. This guide will take you through the advantages and disadvantages of logbook loans and take a look at some alternatives so that you can compare loans. 
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What is a logbook loan?

A logbook loan is a form of secured loan. When a loan is secured it means that a high value asset is used as collateral for the lender, so they have the ability to take the asset should you fail to meet the monthly payments. In this case, the asset is a vehicle, whether that be a car or a motorcycle. If you fail to meet the loan repayment schedule, the lender can therefore take the vehicle from you and use the profits from the sale of it to pay off the rest of the loan.

How do logbook loans work?

Logbook loans can be anything between 500 and 50,000 pounds, depending on how much the vehicle is worth. When you take out a logbook loan, you hand over the vehicles V5C registration document, or ‘logbook', to the lender. Although this is purely symbolic and has no legal standing, these are the documents that prove you are the registered owner. As well as signing a credit agreement, there will also be a ‘bill of sale' produced which means they own your car temporarily until you make the payments.

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Advantages of logbook loans

  • With a monthly repayment scheme, you can budget your money effectively and it can be quite straight forward to pay off.

  • Because it's ‘secured' you will often get better rates than if you had taken out a personal loan. It's often used by people with poorer credit histories as the lender feels more secure knowing they can get their money back.

Disadvantages of logbook loans

  • In the same way secured loans can be beneficial they are also incredibly risky; the lender has the ability to take your vehicle 
  • They're not available to everyone, you will have to be the legal owner of the vehicle, with no finance outstanding on it.
  • In terms of protection, you do not get the same sort of legal cover as you would with a hire purchase agreement.

Alternatives to logbook loans

Generally, logbook loans will be of a higher interest than a typical unsecured loan. Although they might be a good idea for some people, you should compare loans before taking one out to make sure you find the one best suited to your specific financial situation.

Credit unions

These are community-based lending options run by and for the benefit of the members of that organisation. An alternative way of lending outside the usual financial institutions, credit unions will often give much better rates than a traditional lender would do. You have to become a member, and some will require you to have built up some savings first, but these are a great alternative to logbook loans.

Guarantor loans

For people with a poor credit history, guarantor loans are also a viable option. They're a form of unsecured borrowing whereby someone else is responsible for making the payments if you fail to do so. If you have a friend or family member that has a good financial history, lenders will often allow you to make them your ‘insurance' policy, so they are liable for the debt should you miss the payments. These are a good option if you have a bad credit score, but you must make sure your guarantor is aware of the risks before they take this on.

Authorised overdrafts

Perhaps the most straightforward way of borrowing money is to take out an authorised overdraft with your current account. These can usually be done online and are a quick process to getting money into your account. This option is really only useful for those who are looking to borrow a smaller sum of money for a short period of time, and the daily charges can build up fast so make sure you pay it back quickly!
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Fergus Cole

Author: Fergus Cole

Fergus is a journalist specialising in the personal finance, energy and broadband sectors. He also has a passion for travel and adventure so tries to make the most of this in any spare time he gets.

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