What are logbook loans?

A logbook loan is a type of loan that’s secured against your car. It’s a risky and expensive way to borrow money, and best avoided if possible.

Written by

Alex Hasty

Insurance comparison and finance expert

Posted

29 SEPTEMBER 2021

6 min read

Logbook loans explained

A logbook loan, also known as a V5 loan, is a type of secured loan. It allows you to borrow money using your car as security.

When you take out a logbook loan, the lender takes over ownership of your car until the loan’s paid off. You’ll still be able to use your car, as long as you meet the loan repayments. If you can’t make the repayments and don’t pay back the full amount, you could end up losing your car.

You can only get a logbook loan in England, Wales and Northern Ireland. They’re not available in Scotland.

You can’t compare logbook loans with Compare the Market.

How do logbook loans work?

The amount of money you can borrow depends on the value of your car and usually ranges between £500 to £50,000. But some companies will only lend you up to half of what your car is worth.

In most cases when you take out a logbook loan, you’ll be asked to hand over your V5C logbook to prove you’re the registered keeper of the car. You’ll also need to show that you’re insured to drive it.

There are two agreements that you’ll usually need to sign for a logbook loan:

A credit agreement – includes details about the loan, how much you’re borrowing and how the money will be paid back.
A bill of sale agreement – this means the lender is now the legal owner of your car until you’ve paid back the full amount of the loan.

Once the application is complete, the money will be sent by electronic bank transfer into your account – usually on the same day.

A logbook loan is a secured loan – your car could be repossessed if you can’t keep up with repayments on your loan.

How much does a logbook loan cost?

A logbook loan can be a very expensive way to borrow money. Typical average annual percentage rates, or APR, can be 400% or more. For example:

If you borrow £1,500 over 78 weeks with weekly repayments of £55, the full cost of the loan would be £4,290. So, in order to borrow £1,500, you’d be paying £2,790 in interest.

Are there any advantages to a logbook loan?

Quick access to money.
Most logbook loans won’t charge you for early repayment.
Logbook loan companies may consider people with poor credit who aren’t able to get a loan from mainstream lenders.

What are the disadvantages of a logbook loan?

If you can’t make the repayments, you could lose your car.
Interest rates are typically far higher than an unsecured personal loan from mainstream lenders.
You could struggle to pay back what you owe and end up in even more debt.

The Financial Ombudsman Service receives lots of complaints about logbook loans – mainly about loan companies not explaining their terms clearly and not carrying out proper checks to see if customers can afford the repayments.

Citizens Advice advises against taking out a logbook loan, warning that this type of loan can drive people further into debt.

If you do decide to take out a logbook loan, only choose a lender that is authorised and regulated by the Financial Conduct Authority (FCA).

Am I eligible for a logbook loan?

To qualify for a logbook loan, you’ll typically need to:

be 18 years old or over
live in England, Wales or Northern Ireland
own your car and be named as the registered keeper on the V5C logbook
not be in a finance agreement or be towards the end of a finance agreement on your car
have enough value in the car to cover the amount you want to borrow
have valid MOT, tax and car insurance.

How does a logbook loan impact your credit score?

If you keep up with your repayments, on time and in full, then you should see your credit score improve over time. This is because you’re proving that you’re a responsible borrower. If you miss your monthly payments, or can’t afford to repay what you owe, this will be recorded on your credit report and will likely have a negative effect on your credit score.

Unlike most other types of loan, a logbook loan application doesn’t require a lender to run a credit check on you. This means applying for a logbook loan won’t leave a mark on your credit file and be visible to other lenders.

Can you get a logbook loan with bad credit?

Yes, because logbook loans don’t require credit checks as part of your loan application, they can be a useful way to borrow money for people with a bad credit history. This is because your car is acting as the collateral that the loan is secured against. However, because of this, logbook loan lenders will use the car’s value to determine the loan amount you’ll be eligible for.

How to pay back a logbook loan

When you take out a logbook loan, you’ll need to agree a repayment plan with your lender. Here are some things you’ll need to think about:

How will you pay it back? – some lenders will allow you to repay your balance in monthly installments. Others will ask for the full loan amount at the end of the term, with you paying off the monthly interest over the loan term. Have a think about what’s best for you and find a lender that suits that.
The loan term – how long are you going to take the loan out for? This may be negotiable with your lender, with terms from anywhere between one and five years usually available. However, don’t just stretch it out as long as you can. If you can afford to repay it sooner, you’ll avoid racking up further interest. Logbook loans tend to come with high interest rates, so keep the loan term in mind when comparing deals.
Don’t miss your repayments – missing your monthly repayments will potentially cost you your car, as that’s what is used to secure you the loan in the first place. Not only could you lose your car, you could face penalty charges and also negatively impact your credit score. If you keep up with your repayments and pay off the balance by the end of the loan term, it could improve your credit score.

Are there alternative ways to borrow money?

If you’re having cash-flow problems, a logbook loan can seem like a quick-fix solution. In fact, many people who take out logbook loans already have debt problems.

Bear in mind that logbook loans come with heavy interest rates. If you already have debts, will you really be able to afford the repayments?

If you have a number of debts you might want to consider alternative ways to pay them off, which may allow you to spread out your repayments over a longer period.

Alternatives could be:

A debt consolidation loan – this lets you turn multiple debts into one convenient payment. It could be a way to manage your debts more easily and reduce the amount of interest you’re paying on any outstanding debts.
A guarantor loan – this is a type of unsecured loan and an option for those with bad credit. Instead of using your car or home as security for the loan, a friend or relative with a good credit rating guarantees to pay back what you owe if you can’t make the payments.
A 0% balance transfer credit card – this could help you pay off any outstanding debt you have on any other credit or store cards. By moving your debt to a 0% balance transfer card (you’ll be charged a fee for doing this), you won’t have to pay interest for a set period of time. This could help you pay off the debt more quickly. Just make sure you pay off the entire outstanding balance before the interest-free period ends, or you could be stung with a much higher interest rate and end up in debt.
Budgeting loan – if you’re on a low income and are getting certain benefits, you might be eligible for an interest-free Budgeting Loan from the Government’s Social Fund. This can be far cheaper than paying high interest charges, especially if you only need to borrow a small amount of money.

Compare the Market Limited acts as a credit broker, not a lender. To apply, you must be a UK resident and aged 18 or over. Credit is subject to status and eligibility.

Can you get a logbook loan against other vehicles?

No, you need to have full ownership of the vehicle. This is because logbook loans are secured using your car as collateral. If you don’t own the car outright, this can’t be done. This means you won’t be able to get a logbook loan to buy a new car (unless it’s a second car) or use a car you’re still paying off to secure the loan.

If you need a loan to buy a car, we can help you compare car finance and help you understand how car loans work.