Logbook loans: what they are and how they could cost you your car

A logbook loan lets you borrow against your car and keep driving it. The catch is in the paperwork. Until you’ve repaid, the lender owns the car. If you fall behind, it can take the car without going to court. The FCA’s 2015 research into logbook loans found typical APRs of 400% or more, plus fees.

This guide explains how logbook loans work, what they cost and what happens if you can't pay. It also covers the cheaper ways to raise money that don't put your car at risk.

Logbook loans at a glance

• Your car can be repossessed once a default notice expires

• No court order needed for repossession

• Typical APRs of 400% or more, plus fees, according to FCA research from 2015

• The amount you can borrow depends on your car's value

• You can still owe money after the car is sold

What is a logbook loan?

A logbook loan is a loan secured against your car, van or motorbike. It takes its name from the V5C registration document, the logbook, which you hand to the lender.

The security is a document called a bill of sale. When you sign it, legal ownership of the vehicle passes to the lender until the loan is repaid. You keep driving it, but in law it isn't yours. That is the whole basis of the product.

Logbook loans are available in England, Wales and Northern Ireland. Scots law doesn't recognise bills of sale, so a true logbook loan can't be secured on a car in Scotland.

Payday UK doesn’t arrange logbook loans. We’re a credit broker, not a lender. We introduce you to a panel of lenders offering unsecured loans and small loans, which don’t put your car at risk.

Eligibility requirements for logbook loans

The car matters more than your credit record. Each lender sets its own rules, but most ask for the same things:

• You're 18 or over and live in England, Wales or Northern Ireland.

• You own the car outright, with no hire purchase, PCP or other finance left on it.

• The V5C logbook is in your name and shows your current address.

• There's no other bill of sale already registered against the car.

• The car is taxed, has a valid MOT and is insured. Many lenders want comprehensive cover with their interest noted on the policy.

• The car is worth enough to lend against. Lenders set their own limits on its age, value and condition.

• You can show proof of identity, address and income, and you have a UK bank account.

Lenders must still check you can afford the repayments under FCA rules. The FCA's 2015 research found those checks were rarely carried out properly in this market. Don’t treat an approval as proof the loan is affordable.

How do logbook loans work?

A logbook loan follows the same steps with most lenders. The paperwork in steps 3 and 4 is what sets it apart from other borrowing.

1. You apply: You give details of yourself, your income and the car, often online or by phone.

2. The lender values the car: It checks the make, model, age and mileage, and may inspect the car in person. The offer is based on what the car would fetch, not what you paid for it.

3. You sign two documents: One is the credit agreement. The other is the bill of sale, which transfers legal ownership of the car to the lender. You hand over the V5C.

4. The lender registers the bill of sale: It must be registered at the High Court within seven days of you signing. Without that, the lender has no right to take the car.

5. You get the money: It's usually paid into your bank account.

6. You keep driving and repay: Once the final payment clears, ownership returns to you and the lender gives back the V5C.

How do you repay a logbook loan?

You repay in fixed instalments, weekly or monthly, over the agreed term. The FCA’s 2015 research into the market found most loans ran for 6 to 18 months.

Some lenders don't take direct debits, so it can fall to you to make every payment on time. Set a reminder for each due date.

You can repay early at any time and pay less interest. Ask the lender for a settlement figure first, in writing. It can include up to 28 days’ extra interest.

When you’ve paid in full, ask for written confirmation that the loan is closed. It should also confirm the bill of sale has ended.

What happens if you can't pay a logbook loan?

You can lose the car without a judge ever looking at your case. But it doesn't happen the day after one missed payment. The lender has to follow a set sequence, and each step is a chance to act.

1. Arrears notice: Once you're two monthly or four weekly payments behind, the lender must send a notice of sums in arrears.

2. Default notice: Before ending the agreement, the lender must serve a default notice under the Consumer Credit Act. It gives you at least 14 days to clear the arrears. Pay within that time and the agreement carries on.

3. Repossession: nce the notice expires, the lender can take the car without a court order. It can take it from your home, your work or the street.

4. Five clear days: After seizure, the car must stay where it was taken and can't be sold for five clear days. In that time you can ask the High Court to stop the sale, usually by paying the arrears and costs.

5. Sale and shortfall: The car is usually sold at auction, often for less than you'd get selling it yourself. Repossession, storage and sale costs are added, and you still owe whatever is left.

If you don't pay the shortfall, the lender can take you to the county court. A county court judgment stays on your credit report for six years, according to Citizens Advice.

How much can you borrow with a logbook loan?

That depends mainly on what your car is worth. The lender must still check you can afford the repayments. The lender values the car at what it would fetch in a quick sale, then lends a share of that figure.

The FCA's market research found logbook loans ranged from about £500 to £50,000. The average was about £1,000. Firms told the FCA they lent between 60% and 100% of the vehicle's value. Those figures date from 2015, and each lender now sets its own limits.

The amount you're offered is not the amount you can afford. A bigger loan against a more valuable car means bigger repayments and more to lose. Borrow only what you need, and work out the weekly or monthly cost before you sign.

How much do logbook loans cost?

Logbook loans are among the most expensive ways to borrow. The FCA's 2015 research found typical APRs of 400% or more, plus extra fees and charges. Those fees can include arrangement or documentation fees, late payment charges and the costs of repossession and sale.

A logbook loan sits outside the FCA price cap on high-cost short-term credit. The cap’s definition excludes bill of sale loans, whatever their length. So there’s no ceiling on the total you repay.

A longer term makes the instalment look manageable and the total much worse. Compare the total amount repayable, not the weekly figure. Our guide to APR explained shows why the headline rate only tells part of the story.

Advantages of logbook loans

The advantages are real, but narrow. Each one comes from the car doing the work your credit record would normally do.

• Quick decisions: The FCA found approval can take a few hours to a few days, which is faster than many secured loans.

• Credit history counts for less: The car is the lender's main security, so a poor credit record doesn't rule you out on its own.

• You keep driving: The car stays with you and in daily use while you repay, as long as payments are kept up.

• Bigger amounts than some short-term loans: The amount is based on the car's value, so it can exceed what an unsecured lender would offer.

• You can repay early: The Consumer Credit Act lets you settle in full at any time, with a rebate of the interest you haven't used.

Disadvantages of logbook loans

The disadvantages are bigger than the advantages, and most of them only show once something goes wrong.

• You could lose the car: The lender owns it until you've repaid, and can take it without a court order once a default notice expires.

• Very high cost: The FCA found typical APRs of 400% or more, plus fees. The FCA price cap does not apply to these loans.

• Fewer protections than car finance: Hire purchase gives you a one-third rule and a right to hand the car back. A bill of sale gives you neither.

• You can owe money after the car has gone: Auction prices rarely clear the balance, and repossession, storage and sale costs are added on top.

• Damage to your credit file: Missed payments, a default or a county court judgment can stay on your credit file for six years.

• Costs without control: You keep paying tax, insurance and repairs on a car you can't sell or scrap until the loan is repaid.

Can you get a logbook loan on a financed car?

Usually not. On hire purchase, PCP or conditional sale, the finance company owns the car until your final payment. You can't sign a bill of sale over a car that isn't yours to give.

Some logbook lenders will settle a small balance with the finance company and lend against what's left. That swaps finance with strong protections for a loan with very few, at a far higher cost.

Never offer a car still on finance as security without telling both lenders. Selling or pledging goods you don't own can be treated as fraud.

If you're struggling with the finance payments themselves, talk to the finance company first. On hire purchase or conditional sale you may have a right to end the agreement and hand the car back.

Are logbook loans safe?

Not very. Logbook loans are legal and the lenders are regulated by the FCA. But they carry more risk than almost any other consumer borrowing.

The Bills of Sale Acts of 1878 and 1882 still govern them. Nothing in them was written with a car in mind. The Law Commission recommended replacing them with stronger protections. The government dropped that plan in 2018. The gap shows when you compare them with car finance:

If you do go ahead, check the lender on the FCA's Financial Services Register. Ask for a copy of the agreement and proof the bill of sale was registered within seven days.

Alternatives to logbook loans

Before you put your car up as security, check the cheaper options in our guide to alternatives to payday loans.

Selling the car is another route. You get its market value, pay no interest and make a clean break.

Common questions

Can a used car come with an existing logbook loan?

Yes. If the seller took out a logbook loan, the lender still owns the car and can take it from you. You'd be left chasing the seller for your money. The V5C names the registered keeper, not the legal owner, so it won't warn you. Before you pay, run a vehicle history check that covers registered bills of sale, as not all do. Buying from a dealer gives you far more comeback than buying privately.

Can you get a logbook loan with bad credit?

Approval is never guaranteed, but a poor credit record doesn't rule you out on its own. The car is the lender's main security, and the lender must still check you can afford the repayments. Being accepted doesn't make the loan a good idea. Miss payments and you could lose the car and damage your credit further. Our guide to understanding bad credit loans covers this in more detail.

Can I still use my car after taking out a logbook loan?

Yes, as long as you keep up the repayments. You keep driving, taxing, insuring and maintaining the car as normal. But you're using a car you no longer own. You can't sell it, scrap it or change its registration without the lender's agreement. Fall behind and, once a default notice expires, the lender can take it without going to court.

Will a logbook loan affect my credit score?

It can. The lender may run a credit check when you apply, and the loan may show on your credit file. Paying on time can help show you manage credit well. Missed payments, a default or a county court judgment will harm your score. Each can stay on your file for six years. Some logbook lenders don't report to credit reference agencies, so ask before you sign.

What happens if the car is stolen, written off or breaks down?

The debt carries on whatever happens to the car. If it's stolen or written off, the insurer normally pays the lender first, because the lender owns it. Payouts on older cars are often below the balance, and you pay the rest. A major breakdown is your problem too. You keep paying for a car you may not be able to drive. Check your agreement's insurance terms before you renew.

What if my car is worth more than I owe?

If the lender sells the car, any money left after the debt and costs should come back to you. In practice there's often little left. Auction prices are usually below what you'd get selling privately, and repossession and sale costs come off first. If your car is worth well over the balance, selling it yourself before it gets that far is usually the better option.

Can I sell the car during the loan?

Not without paying off the loan first. The lender is the legal owner until you've repaid, so the car isn't yours to sell. Selling it anyway can be treated as fraud, and the lender could still take it from the buyer. If you want to sell, ask the lender for a settlement figure and clear the loan. Then get written confirmation that the bill of sale has ended.

A logbook loan can put money in your account quickly. You’re putting your car at risk on one of the most expensive forms of credit there is. It also comes with fewer protections than almost any other. If you're thinking about one, talk to a free debt adviser first and assess alternative options.