The Risks of Logbook Loans

Logbook loans are a very high risk form of lending, so is it time for them to be more regulated?

What are Logbook Loans?

Logbook loans are a type of Bill of Sale lending, where you borrow money against your car. When taking out these loans, the lender will ask for your vehicle logbook and get you to sign a Bill of Sale, which transfers temporary ownership of your car over to them.

You can still use your car whilst making payments on your logbook loan but you cannot sell it or get your logbook back until the loan is repaid in full.

Some lenders may ask for regular payments towards the loan, whereas others may ask you to pay only the interest each month and then the full debt at the end of the loan term.

Who do these Attract?

Logbook loans tend to attract people who need cash on short-term notice when other lenders won’t lend to them. Most logbook lenders do not carry out credit checks, making them attractive to those with low credit scores.

Expensive and Risky

Logbook lenders tend to offer loans between £500 and £50,000, which is a significant amount of money to borrow, especially when factoring in their exorbitant interest rates.

They are a very expensive form of credit, usually costing even more than payday loans, with interest rates of around 400% or higher!

Most logbook loans run up to 18 months but you can choose to pay this off earlier. However, there may be additional charges if you wish to end the loan term early and have already repaid more than £8,000 in the last 12 months.

These loans can have very serious consequences, as you may lose your car and end up with significant debt, and you don’t have the same consumer protection you get with other forms of credit.

You will lose your vehicle if you can’t make repayments to the lender. Lenders can use bailiffs to seize and sell your vehicle if you end up in payment arrears, and if your vehicle sells for less than you owe, you will still need to pay back the rest.

Citizens Advice Research

Citizens Advice found that there is a lack of consumer protection when it comes to logbook lending. With the car put up as security, no court order is needed before the lender can repossess the car, which means there is no onus on the lender to negotiate when a customer falls behind on payments.

They found many cases where lenders were unwilling to negotiate, instead threatening repossession when customers fell into arrears. This is despite the code of practice stating that “lenders should “allow for alternative, affordable payments amounts when the customer or his appointed debt advisor… makes a reasonable proposal.”

They found that those taking out logbook loans tend to be financially vulnerable with existing debt, and that in many cases, lenders carried out limited credit checks.

“Our evidence shows that logbook lending can lead to instances of severe consumer detriment. The imbalance of power between the lender and consumer as no court order is needed for repossessions can drive harsh debt collection and repossession practices causing both financial and psychological harm.”

They also point out that the Bill of Sales Acts originate from the Victorian era, often using outdated language, which can lead to customers failing to properly understand loan conditions and the risks involved.

Overall, logbook loans are incredibly high risk, and if you need money, it is best to look at other alternatives, which you can do by using free services like Citizens Advice to explore all of your options.

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