Any quest for bad credit loans will undoubtedly have unearthed adverts for logbook loans which are often advertised as no credit check loans or guaranteed loans for bad credit but what are they and how do they work?
Logbook loans are also called V5 loans and provide access to cash that’s secured against the value of a car or other vehicle and the logbook or V5 registration document is lodged with the lender until the loan has been repaid in full.
This means that anyone who owns a car can often get a loan… too good to be true?
Any loan advertised with the term “guaranteed” or “no credit check” needs to be examined and questioned and a logbook loan is no exception.
Don’t get us wrong – the majority of lenders will be reputable and responsible lenders, there may be a market for such loans, they may be right in certain situations but they need to be fully understood as interest rates will be very high and your car is at risk if repayments are not kept up.
So, just how do logbook loans work, in very basic, general terms?
There’s some basic criteria that needs to be fulfilled – most of it pretty standard and required by any other lender – the big difference here is that the applicant will need to provide proof of ownership of a vehicle, the value of the vehicle and confirmation that it’s clear or nearly clear of any current finance agreement. As such, any applicant will need to:
A: Satisfy basic personal requirements such as being over the age of 18, resident of the UK, regular income, etc
B: Legally own a car or other relevant vehicle (van, motor bike etc) that’s clear or almost clear of finance and below a certain age, often set at 10 years maximum.
C: Complete a basic application form, initially online or over the phone.
The initial application will not normally be subject to a credit check, instead the lender will test for affordability. This is why vehicle owners who are victims of a bad credit history, CCJs, those who don’t have a bank account and those who have had a loan application declined already, often turn to such loans which can provide access to the credit they believe they need.
Face To Face Meeting
Once the initial application has been submitted and accepted in principle the applicant will usually be asked to visit a local office and produce the following proof:
1: The car or vehicle and all documentation including the logbook, MOT certificate and insurance.
2: Evidence and proof of regular income and expenditure often by means of a bank statement, wage slips etc
3: Standard proof of identity as requested for example, passport, driving licence, utility bills, letters etc.
It is during this face to face meeting that the terms of the loan will be discussed and agreed.
The loan itself is often paid out there and then… sometimes even in cash! This adds to the perceived appeal of the logbook loan as the whole process can often be completed within just 24 hours.
Borrowing limits will be set by each individual lender and subject to the value of your vehicle. Usually you’ll be able to borrow anything from a few hundred pounds upwards, provided the total loan is less than the value of the car. This maximum will usually be capped at about 75% of value.
Repayments can be fixed over a term to suit but often to a maximum of 36 months or 3 years.
If it seems to good to be true perhaps it is!
In order to provide this form of finance to anyone owning a car with a focus on the sub-prime market, the lender needs to eliminate risk. They will do this by guaranteeing each loan against the value of your car or vehicle. Although you will keep possession of the car and be able to use it as before, ownership has basically been signed away to the logbook loan provider. It is they who will hold the logbook and be able to sell the car in the event of default.
To further reduce risk logbook loans are often subject to very high interest rates and costs can escalate if repayments are late or missed so make sure you study, understand and read the small print VERY carefully.
Logbook loans are specifically aimed at people with a bad credit history who are struggling to get credit elsewhere. If this describes you then we encourage you to think long and hard before accepting a logbook loan or taking on any form of credit at all. There may be better alternatives out there and that’s why you should ALWAYS seek professional advice first.