It can be frustrating trying to find a loan provider when you have a bad credit history.
If you’ve had problems paying back debt in the past, your borrowing options become more limited- even payday companies will often only be willing to gamble small amounts of money (usually up to £1000) on somebody with a patchy credit file.
However, even with a bad credit history, if you live in England, Wales or Northern Ireland and own a vehicle, you could use it to secure a logbook loan and borrow from £500- £50 000.
What Is a Logbook Loan?
A logbook loan is a type of lending where your car, van or motorcycle is used as security against your loan.
As long as you keep up with payments, you can continue to use your vehicle as normal- but until you repay your debt, the lender is the legal owner of the vehicle and can repossess it if you don’t keep up with payments.
When you sign a logbook loan agreement, the lender will register something called a ‘bill of sale’. This is a legal document which transfers ownership of the vehicle to the lender until you have repaid your loan and interest in full. When you finish paying back the money, the bill of sale expires, and you become the legal owner of the car again.
If you fall behind on payments, the lender can take away the vehicle without going to court and sell it to help raise the money you owe them.
Personal Loans v. Secured Loans
If you have a good credit score, a personal loan is a great option for borrowing. Personal loans are unsecured, which means that the lender cannot usually repossess the borrower’s belongings if they fail to repay the loan.
Because this is risky for lenders, this type of loan is usually only given to people with a reliable income and a history of paying back debts on time.
If you have a history of not paying back your debts on time, a lender might ask for security to help them recover their losses if you don’t manage to pay them back. In the case of a logbook loan, your vehicle is security for the lender.
We have written extensively about all different types of personal loans and you can find all the details here, ‘Our Guide To Understanding How Much You Can Borrow For A Personal Loan‘.
Who Can Get a Logbook Loan?
If you are over 18 years old and the registered owner of a vehicle in England, Wales or Northern Ireland, you are probably eligible for a logbook loan. Your car must be free of finance (or have very little left to pay off) and be fully taxed, insured and with an up-to-date MOT certificate.
If you live in Scotland, you cannot get a logbook loan. There are a few companies which might offer you a similar loan (using your vehicle as security), but the regulations surrounding these loans are different from logbook loans.
How Much Can I Borrow?
Logbook loans can be anywhere between £500 – £50 000, but the exact amount will depend on the value of your car. Most lenders will offer you 50% of the vehicle’s market value.
Where Can I Apply for a Logbook Loan?
You can take out a logbook loan with high street and online lenders across England, Wales and Northern Ireland.
Different providers may have different fees and interest rates, and it is important you read these carefully before taking out a loan. They can have a significant effect on how much you will spend repaying your loan or if you fall behind on repayments.
Most providers in the UK are registered with the Consumer Credit Trade Association (CCTA) and agree to abide by a Code of Best Practice, which guarantees minimum standards of behaviour towards borrowers. You can ask your lender whether they are a member.
What Happens When I Take Out a Logbook Loan?
The lender should provide you with a set of documents, which you should read carefully. This will normally include:
The Bill of Sale
This is the document which is used to transfer ownership of the vehicle to the lender. After you have signed the agreement, the lender needs to register the Bill of Sale with the High Court. Once they have done this, they become the legal owner of the vehicle until you have paid back the loan.
The Credit Agreement details the terms of the loan. It will include information about how much interest you will pay, late fees and the consequences of not paying back your loan on time.
Once you have agreed to borrow from the lender, they might ask for your vehicle registration document- your “logbook”. This does not have any legal effect; it’s just symbolic (and makes it harder for you to sell your vehicle in the meantime).
This means that even if you don’t provide your logbook, the lender is still the legal owner of the vehicle.
What Happens if I Can’t Repay My Loan?
If you don’t keep up with repayments, your car could be repossessed. Because the lender is the legal owner, they do not need to go to court to do this.
If you normally pay monthly, the lender will usually claim the vehicle after two months’ of missed payments. If you pay weekly, they can take the vehicle after four missed payments. Once they have taken the vehicle, they must wait 14 days before selling it.
During this time, you may repay the outstanding debt or try to negotiate with your lender. Your lender might be flexible, but this will depend on your credit agreement.
If you decide you want to end the loan early, most agreements will let you do this. You will need to let the lender know, and they may arrange the sale of the car. There may be fees for ending the loan early; you will need to check your credit agreement.
What if My Car Doesn’t Cover the Cost of the Money I Owe?
In most circumstances, the lender should be able to pay off the loan by selling the car. If your car doesn’t sell for a price high enough to pay off your debt, you can write to your lender with your budget and negotiate a way to pay off the remainder of the loan.
In Short: Pros and Cons
Logbook loans can be a great option for people who aren’t able to get personal loans because of bad credit and want to borrow more than payday lenders can offer.
However, like everything in life, there.
|Available to people with bad credit history||You can lose your car if you don’t keep up with repayments|
|If you have bad credit, it can allow you to borrow more than with other types of loans||Interest rates are often very high, making logbook loans expensive borrowing options|
|If you already have bad credit, taking out another loan could make your credit rating worse|
|You can’t sell your vehicle while you have a logbook loan|
How Can Flexy Loans Help?
Here at Flexy Loans, we have partnered with some of the UK’s leading Lenders.
They have already helped thousands of people get loans already, and they can do the same for you.
Choosing a loan broker like us (we don’t charge any fees) means our application process matches you with the best loan available to you. All lenders we recommend are regulated by the FCA, which gives you an additional layer of protection.
To apply and see what loan is available to you, click on the below and answer the question