If you’ve decided you need a loan and are researching the options available, you may be surprised to learn you can leverage the value of your car to help get the loan you need. Loans of this type are called Logbook Loans and I’ll explain how they work, some key features and some points to watch out for.
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How Do Logbook Loans Work?
Logbook Loans work primarily around the value of your car. You offer the car as security for your loan giving the lender a right to take and sell your car to repay the debt if things go wrong. The lenders commonly use something called a ‘bill of sale’, which effectively gives them an interest in the car. You get to keep the car and use it as normal, BUT, you’re not allowed to sell it on because it is now acting as the lender’s security for the loan.
As an added measure the lender will usually keep the ‘logbook’ (hence the name logbook loans) and may well ask for the spare key.
Lenders will typically lend up to around 50% of the value of the car – so if your car is worth £2,000 you could get a loan of around £1,000 using this method.
HOWEVER, the lenders are still required to go through an affordability check – which means they will ask you to detail your income and outgoings to see if there’s enough spare every month to make the loan repayments. The lender may also ask to see things like Bank statements or wage slips to confirm the numbers. All lenders are required to do this by the regulator, the Financial Conduct Authority, and there are severe penalties for lenders who fail to do this. If you come across a lender who doesn’t do it, don’t take a loan out with them! It’s a good indicator that they’re not doing their job properly and you don’t want to be on the receiving end of any sharp practices they may use!
The Logbook Loan Itself
Once the loan has been agreed and paid out it usually works in the same way as any traditional type of loan. You’ll agree a loan amount, a term (the length of time the loan is over) and the monthly repayment. Once the loan is repaid the lender will return the logbook and spare key and remove their interest in the car. You’re then free to sell it on if you wish.
The Good Points
Getting finance via Logbook Loans can have some advantages;
- They can be quick – if you can go in with all the correct documentation you may be able to get your money within the hour.
- You can borrow more – subject to the lender being happy its affordable the loan amounts can be larger if the you have a higher value car.
- You still get to drive the car – the car is still yours to use whilst you’re making the repayments on the loan.
- Rates MAY be cheaper – as the lender takes the car as security this can reduce the APR, the ‘price’ f the loan. APRs for Loagbook Loans currently start at around 140% but can go up to 600% so there’s a big range. That makes them cheaper than Payday Loans but not as cheap as some traditional lenders – you should talk to your loan broker about which loan is most suitable for you as a lot can depend on your credit history.
Although Logbook Loans have some plus points there are definitely some points you need to be aware of if you’re thinking of taking one out;
- The car’s not yours to sell – if you’ve used your car as security for the loan then you are not allowed to sell it on while the loan is outstanding.
- The lender can take the car if you fall into arrears – you’ve offered the car as security for the loan so if you fall behind on your repayments the lender may re-possess the car and sell it to pay off the loan. If you get into difficulties repaying the loan then lenders are required to work with you to find a solution that works for both of you but the bottom line is they can and do repossess vehicles of they feel that’s the only way of getting the loan repaid.
- The interest rate may not be the cheapest – just because you’ve used your car as security don’t assume the interest rate will be the cheapest you can get. Make sure you shop around and talk to a good broker who can lay out the options and answer any questions you may have.
As with any type of personal loan;
NEVER pay an upfront fee to a broker – they don’t improve your chances of getting a loan and good brokers will be happy to get paid by the lender (at NO cost to you) if you take out a loan.
ALWAYS shop around and consider your options – a good broker will be happy to talk to you on the phone, not just collect your details and zap them round the lenders regardless of what you want.
If you’re considering a Logbook Loan why not ask for a call from one of our advisers who can happily answer any questions you may have .
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