What is a logbook loan?
According to the Office for National Statistics (ONS), as of January 2016 the average household debt stood at £11,800. This figure includes student loans but excludes mortgages, and it means a lot of us are in the red instead of the black. Despite so many of us owing so much money (the ONS also reckons UK homes typically owe 26.5% of their annual income on loans and credit cards), borrowing money has never been cheaper. Take out a loan on the high street and you can enjoy interest rates of little more than 3%. We recently brought you a blog on car finance options, but there was one that we deliberately omitted: the logbook loan. We excluded it for two reasons; firstly because we’re covering the topic in full here, and secondly because logbook loans should always be treated as a last resort. The problem with taking the logbook loan route is that it’s a very expensive way of borrowing money, which is why those who decide to sign up almost always have a poor credit rating and are rarely home owners. As a result they can’t borrow money cheaply, via a loan that’s secured on a property. As the name suggests, a logbook loan is secured on a vehicle, which means the lender can seize that vehicle until the loan is paid in full. Under the terms of the deal you can keep using the vehicle as long as you don’t default on the payments – but do so and the vehicle will be snatched back. As a used car buyer you need to be especially careful that you don’t get duped into buying a car with a logbook loan against it. Do so and the lender will snatch the car back so you’ll lose everything. The key is to get an HPI check on any potential purchase, as this will flag up if the car has any finance owing on it.