What is a logbook loan?
It’s a loan that a car’s owner has secured with the value of their car, signing a ‘bill of sale’ document to give the lender temporary ownership.
The car owner gets a quick and easy loan and can keep driving the car, so it seems like a good choice for someone in a tight spot. But don't be fooled.
Until that loan is paid off (which can be anywhere from a few weeks to over a year), the lender keeps the car's logbook and can repossess the car if repayments aren’t met.
‘Securing’ a loan means giving the lender something that they can use to recover their money if you don’t pay, like with pawning jewellery.
High interest rates on these loans can make it tempting for the owner to sell the car even though they legally aren’t allowed to. If you buy a car that has a logbook loan attached to it and the owner doesn’t pay back their loan, the lender can seize your new car without even having to go to court.
There have been many calls for the government to make logbook loans illegal but sadly there has been no new legislation yet.
How can I tell if a car is under a logbook loan?
- If the owner can’t produce the logbook or they only have a duplicate, they may have given the original to a loans company to secure a loan.
- If the owner only has one set of keys, the spare could be with a loans company.
- Do an HPI Check online before buying – it’s a paid service but this will tell you if a car has an unpaid loan on it and protect your purchase if missing information comes to light later. Just make sure you follow HPI’s guarantee guidelines to the letter.
What happens if a car I’ve bought still has a logbook loan on it?
Legally, the loan company can seize the car if the loan hasn’t been paid off, unless you agree to pay the remaining loan yourself. This may be a lot because an unpaid loan can gather additional charges.
If you find out your car is under a logbook loan, you must tell your insurer. If your car was written off and you claimed on your insurance, the money would go to the lender to repay the loan.
What do I do if a lender comes to repossess my car?
Unfortunately, there’s very little you can do. Always ask for ID, documents concerning the loan and contact details if anyone claims to be a collector, so you can follow up the issue with the loans company.
You can try taking the person who sold you the car to court but the costs involved may not be worth it. If you’re in this situation, ask Citizens Advice for help online or go into your local bureau. They’ll explain your rights and help you decide what to do.
The lender is legally obliged to send you a copy of the bill of sale (the document proving their temporary ownership) for the vehicle if you ask, so take that with you if you do get legal advice.