A logbook loan is a type of secured loan, but rather than using your home as security, the loan is secured on your vehicle instead.
They are called logbook loans because you’re effectively exchanging your car’s logbook for a lump sum, which you must repay over a set period of time.
Here’s what you need to know.
How do logbook loans work?
You can usually borrow anything from £500 right up to as much as £100,000 depending on the lender, the value of your car and your ability to pay back what you owe.
As with other types of loan, you must pay back what you borrowed, along with interest. Providers may allow you to do this either weekly or monthly. Some providers allow you to pay back what you owe early without any early repayment charges, but always check with the lender first if this is something you’re planning to do.
When you sign a credit agreement with a logbook loan provider, you’ll also have to sign a ‘bill of sale’ which effectively means the provider will own your car until the loan is paid off. You don’t have to have over the vehicle though – you can still use it while you’re paying back the loan and the provider can only take it from you if you fail to keep up with repayments.
Am I eligible for a logbook loan?
To qualify for a logbook loan, you’ll need to be able to demonstrate to the lender that you have a regular income and will be able to keep up with your repayments. You must be the legal owner of any vehicle you want to take a logbook loan out on.
You don’t normally have to have an excellent credit rating to qualify for a logbook loan, so this an option that’s often considered by those who perhaps have a less than perfect score.
Lenders will also require your car to be insured and taxed. You may be eligible if you have other types of vehicle, such as a motorbike or van, and again these will need to be insured and taxed.
You can only take out a logbook loan if you live in England, Wales or Northern Ireland – they aren’t sold in Scotland as bills of sale aren’t legally binding there.
How much interest will I pay on a logbook loan?
Logbook loan rates are often really expensive, sometimes with annual percentage rates higher than 400%, so make sure you understand exactly how much you’ll have to repay in total before you sign up for one.
Some loans only require you to pay the interest back each month, and then the original sum borrowed in the final months, so always check what you’re signing up for carefully.
Things to watch out for
Make sure any logbook loan provider you choose is both authorised and regulated by the financial regulator the Financial Conduct Authority, and that they are a member of the Consumer Credit Trade Association as this means they must comply with the Association’s Code of Practice.
Bear in mind that there may be other ways to borrow which could be much more cost-effective and which don’t require you to use your car as security, such as balance transfer credit cards or unsecured personal loans. Find out more in our guide Balance transfer credit cards and personal loans compared. Another option you might want to consider is a credit union. Learn how these work in our guide How do credit unions work?