What are logbook loans – and are they a good idea?

What are logbook loans - and are they a good idea?

Logbook loans can be an easy, quick way of getting cash. Available from a wide range of online providers, you temporarily transfer ownership of your car to the loan provider. This acts as security against the loan – so if you don’t keep up with your repayments, they can legally take your car away.

How much can I get a logbook loan for?

We’ve found companies online offering logbook loans for anything from £500 to £150,000. Obviously, it depends on the value of your car. Don’t expect to borrow £100,000 and use a £500 banger as security.

Some companies are picky about the kind of car they use as security, too. Many insist it has to be less than 10 years old, and won’t accept anything obscure. Even if you’re adamant your rotting old Peugeot 205 GTI would make tens of thousands at auction today, logbook loan companies would prefer a nearly-new Ford Focus they can easily flog if required.

How much interest do I pay on a logbook loan?

A lot. Some companies charge as much as 450% APR, meaning there are much better ways to borrow money. They can generally be split over one to five years, with payments made monthly or weekly.

We found a representative example for one loan offered at 190.3% APR (bear in mind, this is one of the better logbook loans available). If you borrow £1,000 over 12 months at a fixed flat rate of 70% a year, you’ll make 12 monthly payments of £141.67 – totalling £1,700.04 over a year. That’s a £700 fee just to borrow £1,000.

A scout around reveals more conventional loans for a similar amount available at just 9.5% APR. This means you’ll pay £87.52 a month – totalling £1,050, including £20.23 interest at 3.7% fixed and a £30 fee. Much more reasonable, if you need the money.

How quickly can I get the cash?

Generally, most logbook loan providers will transfer the money into your account the same day as you apply.

Logbook loans often appeal as they aren’t subject to the same credit checks as an unsecured loan. As long as your car covers the value of the loan, you’ll usually be able to get one, no matter what your credit rating is like.

What are the dangers of a logbook loan?

What are the dangers of a logbook loan?

The main danger is a pretty obvious one: if you can’t afford the repayments, someone could come along and take your car away. It will then be sold at auction, and if it sells for less than the money you owe, you could be taken to court for the rest of the cash.

With some lenders demanding weekly repayments – and not all accepting direct debits – it’s easy to lose track of a logbook loan, too, meaning you could be hit with hidden charges.

Check the terms and conditions. Some lenders won’t let you pay back the loan early, if you find the cash from elsewhere, or will hit you with heavy early repayment charges.

Oh, and if your car is on finance, forget it: technically it still belongs to the finance company, so you won’t be able to use it as security on a logbook loan.

What if I’ve bought a car used to secure a logbook loan?

One of the dangers of a logbook loan is what happens if the car used to secure a loan is then sold.

Legally, if you buy a car with a logbook loan against it, the loan company is well within its rights to send a truck around to take it away if the previous owner doesn’t keep up their repayments. You have no rights to that car because the seller wasn’t entitled to sell it.

The only way to stop this happening is to stump up for an HPI history check before you buy a car. This costs around £20, but also reveals things like whether a car has been stolen or crashed.

Web editor at MotoringResearch.com. Drives a 1983 Austin Metro. Tweet me @MR_AndrewBrady.

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