If you're familiar with logbook loans, you know that they are loans that one takes by putting their vehicle up for collateral for the amount of time it takes to repay the lender. This transaction consists in handing over the registration papers and logbook and transferring ownership temporarily to the lending company.
It's no wonder that one of the major question one asks themselves before taking a loan is whether they can lose their car. That is why it's good to learn how to get a logbook loan without being scammed and how to use a logbook loan calculator; you need to be completely aware of what the process is like and what your responsibilities are regarding the loan, as well as the risks you are taking.
The short answer to the question is yes; you can lose your car with logbook loans. However, there are other risks involved that you need to be aware of, as well as all the other aspects of the process.
Be Aware of Every Aspect of the Process with Logbook Loans
- This is true for any legal document or transaction, but before you sign anything, please read the papers thoroughly and educate yourself on what the circumstances of the loan are. You need to investigate every possible detail or issue that may arise. Do you know the terms of the loan? Do you understand them all? Do you know how repayment is made? Are you aware of how much you're going to repay? What about defaulting – what happens if you cannot repay?
- These are all pertinent questions that you need to have a solid, unwavering answer to before signing a contract where you hand over ownership over your car. Do not put yourself in danger of losing it because you were not made aware of all the circumstances.
How Do You Repay Logbook Loans?
- Logbook loans are repaid weekly, for up to 78 weeks. However, since the interest rate is high, it is recommended that you repay as quickly as possible. If you fall behind on your payments, it is possible that you will lose the vehicle, so it's best to assess whether or not you will be able to pay before agreeing to a logbook loan contract.
- You also have to be aware of the fact that the repayment amount is going to be much higher than the amount you borrowed. That can render you unable to make the repayments weekly, or make them for the full 78 weeks. In addition, you have to think about whether or not it's worth it for you to take a loan with this kind of interest.
What Are the Risks Associated with Logbook Loans?
The interest is extremely high
The first thing that might dissuade you from pursuing logbook loans is the fact that the APR is massive, over 400%. That means that the amount you repay for your loan can be several times higher than the actual amount you borrowed to begin with.
With a maximum repayment term of 78 weeks, that is 78 payments that can bring the interest amount to as much as twice the loan amount. That makes it quite a poor choice in terms of loan options.
You must own the car (value of £500 +) legally, with proper registration
Obviously, in order to be able to secure your loan by offering the company your car, you must first own the car, complete with registration and logbook. The vehicle must be in your name.
Not only that, but the vehicle must have a recently assessed value of over £500, which is generally the minimum loan you can get. Considering that lenders will only offer you a certain percentage of the car's value (sometimes as low as 50%), the vehicle must have some value in order to enable you to get a somewhat decent loan.
You cannot sell the car while it's under the ownership of the lending company
Since you no longer own the car and are not in possession of the ownership papers, it is obvious that you cannot sell it. While you can still use the vehicle, through the bill of sale, your options are limited as to other transactions you can make with the car.
That means that while the car is in the possession of the lending company, you are just "borrowing" it and cannot complete any legal transactions involving it, whether it's selling it or taking another loan on it.
The bill of sale also needs to be registered with the High Court in order to be recognised legally. You can check National Debtline for a breakdown of how you can find out whether or not your bill of sale is registered and thus, if the lender can come and repossess your car if you are unable to pay.
You can lose your car to the lender if you cannot repay
Finally, the biggest risk of all, yes, you can lose your car with logbook loans. Since you've handed over the ownership papers, you agreed to having your car taken away, should you become unable to pay your loan.
Generally, they do not repossess your car immediately after you fall behind on a payment, but if you're several payments behind, you can expect to receive a letter letting you know that action will be taken.
You have 14 days to respond to this letter, and after that, your vehicle will be taken away and sold, if you cannot pay. Once it is sold, you can still be liable for payment, if the amount received in the sale does not cover your outstanding debt, which makes this a very risky loan, especially considering the relatively low amount you receive in comparison to the car's actual value.
So, the answer is, unfortunately, yes, you can lose your car with logbook loans, which makes it a very risky financing option. It is advisable to look into alternative loans, or at the very least, plan to repay the loan early so that it's not as expensive.