Lending comes in many forms. Whether you’re looking to borrow to cover budget overspill or essential repairs, there is lots of choice. Logbook loans don’t have quite the same profile as payday loans or personal loans. However, they are a type of credit that has given many people the opportunity to access borrowing. Even if you don’t have a perfect credit score or a highly paid job, logbook loans might still be a good option. The only essential you need for logbook loans is a car or other vehicle. So, how do they work?
Secured vs. unsecured lending
Logbook loans are a type of secured lending. So, the lender offers the cash to you with the car as the security against the repayments not being made. In practice, this means that if you don’t make the repayments on the logbook loan the lender could sell the car to cover its costs. With secured loans – for obvious reasons – it’s even more important to make sure that the repayments you’re agreeing to are affordable. Borrow an amount that works with your needs and choose a repayment period that fits within your budget.
What about a bad credit score?
Logbook loans offer options for those without perfect credit. If your credit score isn’t all roses then you can still apply for a logbook loan. Lenders are much more willing to agree to lending if it is secured. This means that because you’re able to offer the car as security for the loan, problems with your credit history won’t usually a big issue. In many ways logbook loans work a little like guarantor loans. But instead of your guarantor friend giving reassurance to the lender that they will be repaid, the car provides that instead. If your credit isn’t great then it’s important to think about whether a new loan is a good idea. Borrowing and repaying sensibly could help improve your credit score. However, if you’ve had problems in the past with making repayments then you could make things worse. Only borrow what you can afford to repay to make sure that lending is always a positive experience.
So, how do logbook loans actually work?
Logbook loans are designed to help you release the value in your car without having to sell it. You can usually borrow anything from £500 up to potentially the full value of the car. Repayment terms are upwards of six months, to 36 months. If you want to borrow a logbook loan then find a lender who won’t charge an early repayment fee for the loan. That way, if you decide you want to repay early it makes no difference to the cost of the borrowing. The logbook loan is arranged pretty much like any other type of lending. The one major difference is that the lender will take possession of your V5 registration document. This is the official document that shows proof of registration of your car.
Do I still own the car?
You still keep the use of the vehicle through the term of the logbook loan. As long as you make all the repayments then the certificate is returned to you at the end of the term of the loan. You are still responsible for insurance, maintenance etc. and should continue to use the car as you did before.
How much can you borrow?
Although you can borrow anything upwards of £500, there is some limitation on what a lender will offer. This will depend on the model of the car, how old it is, the condition it is in etc. All these factors will together help the lender decide the value of the car and it’s that which is used to determine what you can borrow. You’ll pay interest for the length of time that you borrow the loan, with each monthly repayment made up of part interest and part capital.
What are the benefits of logbook loans?
Logbook loans are becoming increasingly popular because they are accessible and flexible. Here are a few of the benefits they offer:
Options to borrow even if you don’t have perfect credit
Use the car as security but still continue to drive it, and use it, as normal
Flexible repayment to work with your budget
The option to repay early without paying an early repayment fee
Borrow a small amount or anything up to the full value of the car
Alex Hartley is a keen advocate of improving personal finance skills. She's worked at Solution Loans since 2014 and written hundreds of articles about how people can manage their money better. Her interest in personal finance goes way back to...Read more about Alex Hartley