Logbook Loans: An Understandable Guide

What is a logbook loan?

The basics

A logbook loan is a secured loan in which the borrower pledges a vehicle as collateral. The lender typically takes possession of the vehicle's logbook (V5C) or holds a security interest while allowing use of the car, until the loan is repaid. If the borrower defaults, the lender may repossess the vehicle and sell it to recover the loan.

The collateral

The logbook is the official record of ownership. In many cases the loan amount depends on the current value of the vehicle, minus fees. The arrangement focuses on the car's value rather than the borrower's credit history.

How it works and what to expect

The application process

Lenders assess the vehicle, value, and affordability. You may need documents like the V5C, identity, and proof of income. The lender may conduct a car check for outstanding finance.

The loan terms

Loans are often short-term, with high interest and fees. The borrower keeps using the car, but the lender retains a security interest. Failure to repay can lead to repossession.

Repossession risk

Default can lead to the lender reclaiming the vehicle. Depending on the contract, the borrower could still owe money after the sale if the sale price is less than the debt.

Costs and risks

Interest and fees

APR can be very high. There may be arrangement fees, admin charges, and early repayment penalties.

Impact on vehicle use

Repossession is a real risk; even if you keep driving the car, the lender can claim it if payments stop.

Other risks

There may be legal costs or debt spiraling if the loan is rolled over or renewed repeatedly.

Alternatives to logbook loans

Personal loans from mainstream lenders

Look for affordable rates and clearer terms; secured or unsecured options may be available.

Credit unions and regulated lenders

Non-profit or regulated lenders may offer affordable terms and clearer protections.

Other options

Saving up, borrowing from family, or selling the vehicle to fund needs.

Regulation and consumer protection

Who regulates

In some jurisdictions, logbook lenders fall under consumer credit regulation. Check if the lender is authorized and compliant.

Reading contracts

Understand terms on repossession, fees, early repayment, and what happens if you miss payments.

Final thoughts

Logbook loans can provide quick cash using a vehicle as collateral, but they carry high costs and the risk of losing the car. Compare alternatives and read the contract carefully before proceeding.