What is a logbook loan?
A logbook loan, also known as a V5 loan, is a quick cash loan against your car. Vehicle-secured loans temporarily transfer ownership of your car to the lender until you repay the loan. You can still use your car provided you keep up with repayments, but the lender can take and sell your vehicle if you fail to do so.
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How do logbook loans work?
Logbook loans work like other secured loans but use your car as the lender’s security instead of your home or other item of property. Many logbook loan lenders will offer cash for your car without checking your credit score. But these loans can more expensive than other secured or unsecured loans, so it’s best to consider your options.
Where to find them
You can find logbook loans online or on the high street. Logbook loans for cars in the UK are commonly offered by lenders that offer finance to people with poor credit scores.
Bill of sale
A bill of sale is an agreement you’ll sign if you take out a logbook loan. It gives the lender temporary ownership of your car until the loan is paid off.
Eligibility criteria
The eligibility criteria for a logbook loan depends on the lender. But generally, you must be over 18 and the registered keeper of the car. Your vehicle must be taxed, insured and have an MOT, and must not have existing finance on it.
A few lenders offer guaranteed logbook loans, regardless of your income, but this is a risky approach as you may not be able to afford repayments.
Required documents
Required documents for the loan application process include your V5C registration document (the log book) from the DVLA, proof of your income, and a valid driving licence. The lender may ask for more things too depending on requirements. You’ll typically need to provide proof of income to show that you can afford repayments.
Application process
The application process involves submitting the relevant documents, and the lender checking your credit score and inspecting and valuing your car. If you’re approved for a loan, you get the cash and the lender holds onto the logbook until it’s paid back.
You’ll usually get your money directly in your bank account or even in cash, sometimes on the same day that you apply for the loan. Some firms charge a fee of up to 4% for receiving the money in cash for your car.
How much can you borrow?
The amount you can borrow will depend on the lender’s assessment and how much your car is worth. Generally, though, logbook loan providers lend between £500 and £50,000. Some lenders offer around half of the trade-in value as a loan.
Factors that influence your loan amount
Factors that affect your loan amount include your credit history, income, and employment status. The age, make, model and condition of your car are also used when deciding on your loan amount.
How your vehicle's value comes into play
The lender will inspect your vehicle and work out its trade-in value based on things like age, mileage and general condition. The loan will be only a percentage of that valuation amount, not the full value of your car.
What are the pros and cons?
Here are some of the pros and cons of logbook loans:
Advantages |
Disadvantages |
|---|---|
You can get access to cash faster than other types of loan, sometimes on the same day. |
Interest rates on logbook loans can be staggeringly high (as much as 400%) compared with other types of loans. |
Some car loan lenders don’t check your credit score. |
The lender could take your car and sell it if you miss repayments. |
You can keep driving your car while paying off the loan. |
Some lenders will not allow you to make payments by direct debit. This means you must remember to keep up with payments. |
You just use your car as security, not your home. |
You get less consumer protection with a logbook loan than other types of car finance. |
You can usually pay off your car loan early without paying a penalty. |
You could end up really struggling with debt if you can’t afford to repay the car loan. |
You could borrow more money than a standard loan if you have an expensive car as it’s based on your car’s value. |
If you miss repayments your credit score could be damaged, affecting your chances of getting future credit. |
Choosing your logbook loan provider
Choosing your logbook loan provider should involve shopping around and comparing providers to get the best deal for your situation. If you take out a loan, go for a lender that’s authorised and regulated by the Financial Conduct Authority (FCA).
Key considerations
If you’re considering taking out a logbook loan, it’s crucial to understand how much you’ll pay and the risks involved, as well as how the loans work.
Comparing interest rates
Comparing interest rates, or annual percentage rates (APRs), is important as they vary greatly between lenders. Logbook loan rates are usually much higher than for most secured loans.
Comparing repayment terms
Repayment terms typically range from three to 60 months, but the period will depend on the lender. The terms include:
- how long you have to repay the loan
- whether you’ll make payments weekly or monthly,
- any penalties for loan defaults or early repayment.
You should be able to pay your loan back early if you can afford to do so
Managing your finances during the loan term
Once you've got a logbook loan, it's crucial to stay on top of the repayments so you don't risk losing your car. If you are struggling to make repayments, tell your logbook loan provider as soon as possible. You may be able to agree on a plan to manage payments.
Creating a repayment plan
Creating a realistic and manageable repayment plan will help to avoid falling behind on payments and losing your vehicle. Review the loan repayment terms and set up a direct debit if you’re able to, which should ensure you avoid missing payments. Some logbook loan providers won’t allow direct debit payments.
Handling financial difficulties
If you run into financial difficulties, speak to your logbook lender straight away. Your lender may be willing to negotiate things such as a different payment plan. You can also speak to debt charities such as National Debtline or StepChange if you’re struggling to repay your debts.
Knowing your rights
Make sure you understand your rights and the lender's obligations. You have rights to clear and transparent information about the loan terms and a cooling-off period that’s typically 14 days, during which you can cancel the loan.
The lender must follow a strict process before they can repossess your vehicle, including sending notices on missed payments. You should have the right to end the agreement early by repaying the loan amount, with any fees due.
Exploring alternatives to logbook loans
It's important to explore alternative borrowing options before taking out a logbook loan. A logbook loan is usually expensive compared with other secured borrowing and comes with the risk of losing your vehicle. Here are some other options:
Other types of secured loans
A secured loan enables you to take out a loan against something you own, usually your home. You can often borrow a larger amount of money than you can with an unsecured loan, but you risk losing the asset your loan is secured against if you don’t keep up with repayments.
Personal loans
An unsecured personal loan from a bank or building society could have much lower interest rates, especially if you have a good credit history. You don’t need anything to secure the loan against, such as a car. You’ll usually repay a personal loan over one to seven years.
Credit cards
Credit cards can be a flexible way to borrow if they’re managed carefully. It’s best to use a 0% purchase credit card if you can get one to spend on, and aim to pay back the full amount you’ve borrowed within the interest-free period.
Short-term loans
For smaller amounts needed over a few weeks or months, payday or other short-term loans are available. These short-term, high-cost loans tend to come with interest rates and fees that are higher than other forms of borrowing. But the regulator, the Financial Conduct Authority, has capped the fees so you will never pay more than double what you borrowed.
Common questions about logbook loans
Find answers to the most frequently asked questions about getting a logbook loan, also known as a vehicle logbook loan or a V5 loan.
Can I still use my vehicle while repaying a logbook loan?
Yes, you can continue using your vehicle while repaying a logbook loan, as long as you keep up with your repayments. But if you miss payments, the lender has the right to repossess and sell your car to recover the outstanding debt.
Will my car be repossessed if I miss a payment?
Most logbook loan providers will not immediately repossess your vehicle if you miss a single payment. They are typically required to provide a notice period, often around five to seven days, before taking action to seize the car. But the lender does not need to go through the court to begin vehicle repossession, as the vehicle serves as security for the loan.
Will logbook loan providers perform a credit check?
Many logbook loan providers do not perform hard credit checks. This can make logbook loans an option for people with poor credit histories who may struggle to borrow elsewhere. Even so, responsible lenders must assess your ability to make loan repayments before approving your application.
Can I transfer my logbook loan to a new vehicle?
No, you cannot transfer your logbook loan to a new vehicle. Your logbook loan is secured against your specific vehicle, so you cannot typically transfer an existing loan to a new car. If you want to take out a logbook loan on a different vehicle, you would need to apply for a new loan and settle any outstanding debt on the previous loan.
Can I get a logbook loan if I’m unemployed?
You may get a logbook loan if you’ve just become unemployed and have a bad credit score. But the interest rate is likely to be higher than for someone with a job and a good credit score.
Can I get a logbook loan if my vehicle is old/high mileage?
You can usually get a logbook loan if your car is under 10 years old, and been driven under 100,000 miles. But criteria can vary between lenders, and some may consider older or higher mileage vehicles depending on their condition and value.
Will it impact my credit rating?
A logbook loan can affect your credit rating both positively and negatively, depending on how you manage repayments. If you keep up with repayments, then your credit score should improve as this will show you’re a responsible borrower. But if you miss your repayments, this will show on your credit record and will likely damage your credit score.
If you have a bad credit score, taking out a logbook loan could risk your score falling further and you may lose your car if you can’t keep up with repayments.
Summary: Logbook loans
Logbook loans offer quick cash using your vehicle as the lender’s security, but they carry significant risks and costs. These include higher interest rates than other forms of borrowing and the risk of losing your car and damaging your credit score if you fail to keep up with repayments.
The Financial Ombudsman Service receives plenty of complaints about logbook loans. Typically, these involve lenders failing to explain the loan terms clearly, or not checking whether borrowers can afford repayments. Citizens Advice warns that taking out a logbook loan can result in you sinking further into debt, so make sure you understand the risks before considering V5 loans.