Can I get a secured loan against my car?

What is a logbook loan?

A logbook loan is a type of secured loan that uses your car as security. You borrow money against the value of your vehicle and the lender keeps your V5 registration document (also called a logbook) until you pay back the loan.

Logbook loans can be popular due to their accessibility, and the fact that many don’t require credit checks.

However, this can lead to problems, as lenders may provide them to people without a full understanding of their affordability. This may result in missed payments, and the potential loss of your vehicle, as well as damage to your credit score.

How does a logbook loan work?

A logbook loan can be taken out against a variety of vehicles, e.g. cars, vans and motorcycles. They typically run for up to 18 months (or 78 weeks). The usual process is as follows:

• Step 1 – Complete application: Fill out an application form with details about yourself and your car. This includes your car's make, model, age, and mileage.
• Step 2 - Vehicle valuation: The lender checks how much your car is worth. They might ask for photos or arrange an inspection.
• Step 3 - Loan approval: If approved, the lender offers you a loan amount. This can usually be up to 70% of your car's value.
• Step 4 – Sign agreement: You sign a credit agreement. You also sign over your V5 document to the lender.
• Step 5 - Receive funds: The lender transfers the money to your bank account – sometimes on the same day.
• Step 6 - Make payments: Make regular payments until the loan is paid off. Once fully paid, you get your V5 document back.

You can keep driving your car throughout this process. The lender only takes your car if you can't make your payments.

Can I get a logbook loan on a financed car?

Usually, no. You can't get a logbook loan if you still owe money on your car. This is because you don't fully own the vehicle yet.

The car needs to be yours completely before you can use it as security for a logbook loan. You must have the V5 document in your name.

If you're still paying off car finance, you have these options:

• Wait until you finish paying off your current loan
• Settle your existing car finance early
• Look for other types of loans instead

Some lenders might consider your application if you only have a small amount left to pay on your car finance, but this is rare.

How much can I borrow with a logbook loan?

The amount you can borrow depends on your car's value. Most lenders offer between 50% and 70% of what your car is worth.

Example amounts:

• Car worth £2,000 = Borrow £1,000 to £1,400
• Car worth £5,000 = Borrow £2,500 to £3,500
• Car worth £10,000 = Borrow £5,000 to £7,000

Typical loan amounts range from £500 to £50,000. The exact amount also depends on:

• Your ability to make repayments
• Whether you have a job
• Your credit history
• The lender's policies

Remember: Borrowing more means paying more interest. Only borrow what you really need and can afford to pay back.

Are logbook loans risky?

Yes, logbook loans do carry risks. Here are the main ones:

• Risk of losing your car: If you can't make payments, the lender can repossess your car.
• Debt spiral risk: If you struggle with payments, you might be tempted to borrow more money. This can lead to increased debt problems.
• High interest rates: Logbook loans often have higher interest rates than other types of loans. Their average APR is around 400% which can make them very expensive.
• Total amount repayable: You might end up paying back much more than you borrowed because of interest and fees.

What should I consider before taking out a logbook loan?

Think carefully about these points before applying:

• Can you afford the payments?: Work out your monthly budget. Make sure you can afford the loan payments along with all your other expenses.
• Do you really need the money?: Consider if the expense is essential or if you can wait and save up instead. Due to the high rates typically associated with logbook loans, you’ll often pay more in interest than you’ve borrowed.
• Have you tried other options?: Look into personal loans, credit cards, or borrowing from family first. These might be cheaper.
• What happens if you lose your job?: Could you still make payments if your income dropped?
• Is your car essential?: If you need your car for work or family reasons, losing it would cause serious problems.
• Read the small print: Understand all the terms and conditions. Know exactly what you're agreeing to.

What happens if I can't pay my logbook loan?

If you miss payments, here's what typically happens:

• First missed payment: The lender contacts you to find out what's wrong. They might offer to help by changing your payment date.
• Continued missed payments: The lender sends formal notices. They might add late payment fees to your account.
• Default notice: After several missed payments, you receive a default notice. This gives you a chance to catch up on payments.
• Repossession: If you still can't pay, the lender can take your car. They don't need a court order to do this.
• Selling your car: The lender sells your car to recover the debt. If they get more than you owe, they should give you the extra money.
• Remaining debt: If selling your car doesn't cover the full debt, you still owe the remaining amount.

If you’re struggling with your repayments, you should:

• Contact your lender as soon as possible to explain your situation
• Ask about payment holidays or reduced payments
• Seek free debt advice from charities like StepChange or Citizens Advice

Alternatives to a logbook loan

Before choosing a logbook loan, consider these alternatives:

• Personal loans: Most lenders offer unsecured personal loans. These often have lower interest rates but require better credit scores.
• Homeowner loans: You may be able to borrow against your home, using your property as security. Rates are usually lower than unsecured loans, and amounts are usually higher, with less focus on your credit score.
• Credit cards: For smaller amounts, a credit card might be cheaper. Look for 0% purchase cards if you qualify.
• Credit union loans: Credit unions offer loans to members at fair rates. You need to join first, but it can often be worth it.
• Borrowing from family or friends: This may be interest-free, but make sure you have a clear agreement about repayments to avoid awkwardness down the line.
• Budgeting loans: If you receive certain benefits, you might qualify for a budgeting loan from the government.
• Saving up: If possible, delay the purchase and save up the money instead. This avoids interest charges completely.

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