Logbook loans have grown in popularity in the UK over the past two decades as more motorists use their vehicle as security to borrow cash.
It has become a viable lending option for people who need money urgently, whether it’s due to an unexpected home repair, redundancy, refinancing a business, or a host of other reasons.
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A unique solution when fast financial assistance is imperative, logbook loans enable you to put up your vehicle as collateral. This can cut out the paperwork, hassle and time of applying through regular channels, such as banks.
Logbook loans for bad credit can provide a borrowing option for people whose credit rating is poor. Using your vehicle as security can open a line of borrowing that other financial institutions can’t offer.
What is a logbook loan?
A logbook loan is a type of secured lending or pawnbroking, when the vehicle’s owner hands over the logbook (the V5 document) to the lender in order to secure a cash loan. The borrower can continue to use their vehicle for the duration of the loan’s repayment.
The loan amount will depend on the type and age of the vehicle, its current market value and its general condition. Certain autos, such as luxury cars, rare models and vintage cars, are likely to command a higher price than others.
In addition, logbook loans for motorbikes are also available. As with cars, certain models may be more sought after such as Harley Davidson, Yamaha, Kawasaki, Ducati and Honda. Vintage and collectible motorbikes including Buell, Triumph, MV Agusta, Royal Enfield and BMW are also popular.
How does a logbook loan work?
A potential borrower must be at least 18 years old and the car normally must be under ten years old, although older vehicles of special interest may also be considered. The loan amount is calculated based on the vehicle’s value, while the repayment terms can vary between lenders. Photo ID will be required (such as a passport or driving licence), along with proof of insurance and bank statements.
As long as you’re the vehicle’s legal owner, each application is treated on its own merits. A poor credit history is not necessarily a bar to obtaining a logbook loan, although lenders may collect information from credit reference agencies to help them make a decision.
Lenders must check whether the borrower is able to repay the amount. As soon as a price is agreed, the loan is processed and approved on the same day. On some occasions, the money can be paid out in as little as two hours: once the paperwork is signed, the money is transferred.
The lender requires the V5 and a spare key if one is available. These are returned once the loan is repaid in full. The vehicle must have fully comprehensive insurance, tax and an MOT, unless it’s a vintage vehicle which doesn’t require an MOT by law.
Borrowers can carry on using their vehicle while the loan is outstanding, but if they default on repayments, legally the lender has a right to repossess it. Once the loan has been repaid, the borrower will receive their V5 and spare keys back.
History of logbook loans
The use of logbook loans may seem like a recent means of borrowing money, but automobile pawn has actually been around for more than a century. Using a vehicle as collateral began in the early 1900s, when owners of horse-drawn carriages would borrow money from pawnbrokers by using it as security.
Motor cars became more common during the 1920s, with the number on UK roads increasing from around 300,000 at the start of the decade to more than one million by 1930. Pawnbrokers started accepting cars for collateral for loans too – a practice that became more common in the 1950s.
During the 1960s and 1970s, people who didn’t qualify for a bank loan increasingly turned to logbook loans to borrow money quickly. In the latter part of the 20th century, logbook lenders became a thriving industry, with increasing numbers of companies opening across the UK in the 21st century.
Over the past decade, the number of logbook loans in the UK has increased by 61%, according to data from Citizens Advice, with almost 60,000 registered bills of sale confirmed from auto pawn shops.
Financial Conduct Authority
The reputation of the logbook loans sector has greatly improved, with this alternative lending method being recognised as a viable way for people with a poor credit rating to obtain finance.
The UK’s regulatory body for financial services, the Financial Conduct Authority, has been responsible for monitoring lenders’ practices since 2014. New laws were introduced in 2017 to replace the outdated Bills of Sale Act to protect both buyers and reputable lenders and to outlaw any “cowboys” in the sector.
Changes included ensuring borrowers fully understood the agreement and were given fair warning that their vehicle may be repossessed in the event of non-payment. Lenders must now obtain a court order before repossessing a vehicle.
This level of protection has improved the industry’s reputation, although in reality, the best logbook loan companies have always put the customer first. A reputable lender will normally give borrowers a chance to put a repayment plan in place, should they hit financial difficulties during the loan’s duration.
A Financial Conduct Authority check for new borrowers requires lenders to carry out an affordability assessment and also demands that customers receive clear information about interest rates, loan terms and the consequence of falling into arrears. Fair collection practices require repossession to be a last resort.
Future of logbook loans
With the current economic climate, which has seen consumers struggling with higher prices, people are increasingly using credit to help survive these challenging times. A study by the Money and Pensions Service in 2023 revealed more than 12 million people in Britain were borrowing money for essential bills and food for the first time in their life. The poll of 2,180 adults revealed 53% of borrowers had used a loan to pay utilities debts; 43% stocked up on food; 52% paid their mortgage and 51% funded dental treatment.
The benefits of logbook loans include quick access to cash, with no need for extensive credit checks and the ability for borrowers to continue using their vehicle. Each lender can be different with their agreements, so it’s important to fully research what the process involves before going ahead.
Vehicle pawn has opened up new possibilities for people who may not have access to mainstream lending.
Warning: Late repayment can cause you serious money problems. For help go to moneyhelper.org.uk.
