Can I use my car as collateral for a loan?

You may be able to take a loan out against a car (or another vehicle) if you meet the lender’s criteria. This is known as a logbook loan. Be aware, they tend to be expensive. If you fall behind on your repayments, the lender could repossess your vehicle.

7 min read
car parked outside of house

How do logbook loans work?

Logbook loans are available in England, Wales and Northern Ireland (not Scotland), and are another form of secured lending. Unlike the more conventional secured loan, which is taken out against your home, a logbook loan uses your car as collateral. You must own the vehicle outright before you apply, at which point you will transfer ownership to your lender until the loan is repaid in full.

Note, you cannot sell the car until you’ve paid off the loan. Once the loan is cleared, you take back full ownership of the vehicle.

No credit check is required, so logbook loans tend to appeal to those with bad credit. However, there are risks involved and these types of loans tend to come with high interest rates.

Also, it’s important that you always pay on time. The lender could take possession of the vehicle (against which the loan is secured) should you fall behind with repayments.

You can apply on the high street or online. When you apply, the lender will ask you to sign a ‘bill of sale’ as well as a credit agreement. This is a legal document that the lender registers with the High Court. It is used to transfer ownership of your vehicle from you to the lender until the loan is paid in full, and there is a chance a fee may apply. 

What vehicles are typically accepted?

Logbook loan lenders typically accept a range of vehicles, such as cars, motorbikes, vans, and motorhomes.

How much can I borrow with a logbook loan?

You may be able to take out around £500 to £50,000 with a logbook loan. The minimum and maximum amounts you can borrow will depend on:

  • how much your car is worth
  • your individual circumstances
  • the lender’s criteria.

Lenders may offer you around 50% (or sometimes more) of your car’s value. They’ll normally transfer the funds electronically. Some companies may pay you in cash, but a fee may apply.

Logbook loans can run for up to 78 weeks. It’s worth remembering that you can pay the money off earlier if you want to, but an early repayment charge may apply.

What documents do I need?

As part of the application process, you’ll need to provide your logbook (V5) or registration document. This proves that you are the registered keeper and allows the lender to check whether there is existing finance against your car. If there is, you’ll need to get permission from your current provider to take out a logbook loan.

How risky are logbook loans?

There are several risks involved in taking out a logbook loan and you should consider these before deciding whether to take one out.

  • You could lose your car – if you stop making repayments on the loan, the lender can repossess the vehicle you secured the loan against
  • It may damage your credit score – not meeting your repayment plan could damage your credit score and you may incur late fines
  • Logbook loan interest rates can be very high – sometimes as high as 400% or more

Factors to think about before taking out a logbook loan

Make sure you consider the following factors before you commit to getting a logbook loan.

Your vehicle might not be worth enough

How much you can borrow depends on how much your vehicle is worth, so you may struggle to get a logbook loan for the amount you need.

Bear in mind, if you get a logbook loan and your car does end up being repossessed due to non-payment, you will be liable for the difference between:

  • what the lender sells it for
  • and the outstanding balance on the loan (i.e., the shortfall).

The Annual Percentage Rate (APR)

APR (annual percentage rate) represents the total cost of borrowing over a year. It’s shown as a percentage and includes all interest and charges, for ease of comparison.

Typical APRs on logbook loans are 400% or higher, which makes this an expensive form of borrowing. For example, if you borrowed £1,000 over 72 weeks (18 months) at 400%, you would pay around £39 a week and repay over £2,800 in total.

Hidden fees and costs

Check out all the fees and costs involved to make sure there aren’t any surprises later on. They’ll be listed in your credit agreement.

How do I make repayments?

Some lenders may require you to pay weekly, sometimes without a direct debit in place. You should be aware of this and confident that you can be organised enough to make the repayments on time.

If not managed correctly, you risk incurring late fees, or as a last resort, having your vehicle repossessed. Just one missed payment could cause your credit score to dip by around 130 points.

Also bear in mind that with some logbook loans, you only pay interest - until the final month of your agreement, at which point you’ll need to repay the total sum borrowed. So, it’s important that you consider how you will afford to pay this off at the end.

Can I get a loan on my car if I still owe money on it?

No, you need to be the legal owner of the vehicle to apply for a logbook loan. So, if your vehicle is on car finance, or already has credit secured against it, you probably won’t be able to take out a logbook loan.

What happens if you can’t pay your logbook loan?

If you can’t pay back your logbook loan, you should contact your lender straight away to let them know and see if there is anything they can do to help. Otherwise, they will chase you for payment. If you need extra support, you could contact a debt charity, like StepChange or Citizen’s Advice, for free advice.

If you don’t reach an agreement with your lender and you miss three to six payments, they may issue a ‘default notice’. This is a letter giving you 14 days to clear your arrears. If you don’t make up any missing payments, a default will be registered on your credit report, which will show for six years. This can negatively affect your chances of getting approved for credit in the future.

After a default has been registered and there is a bill of sale agreement in place, your lender has the right to repossess your vehicle and sell it at auction. They don’t have to go to court to repossess your car. Repossession is usually a last resort, when the lender has not been able to reach a repayment arrangement with you.

Note, any removal charges will normally be added to your debt. If the proceeds from the sale of the car aren’t enough to cover the full outstanding balance, then you will owe the shortfall. If the car sells for more than what you owe, then you will receive a refund for the difference.

Alternatives to logbook loans

There are several alternatives to logbook loans:

  • homeowner loan (also known as secured loan) is a form of borrowing that you secure against your house. You can usually borrow larger amounts than with a logbook loan, although you risk losing your home if you stop making repayments.
  • An unsecured or personal loan may be an alternative if you don’t want to secure the loan against an asset. Just be aware that you might need good credit to get accepted.
  • If you have bad credit, you may want to consider getting a guarantor loan to help you access a better interest rate. Remember that the person who acts as your guarantor will become jointly liable for the repayments.
  • debt consolidation loan could be the answer if you have multiple debts and want to streamline your finances. Remember, if you consolidate your existing borrowing, you may be extending the term and increasing the amount you repay in total.

Secured Loans from £10,000 to £500,000

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Secured loans are secured against your property.

Disclaimer: All information and links are correct at the time of publishing.

Zubin Kavarana, Personal Finance Writer

Zubin Kavarana

Personal Finance Writer

Zubin is a personal finance writer with an extensive background in the finance sector, working across management and operational roles. He applies his experience in customer communication to his writing, with the aim of simplifying content to help people better understand their finances.