Are you familiar with logbook loans? If you didn't know, they are loans you can take by putting your car up as collateral. The transaction consists in handing over the logbook and registration papers to your car in exchange for a part of the value of the vehicle. While that may seem like a good idea in theory, in reality, it can be an extremely risky thing to do, and you could very easily be scammed.
You're probably wondering what's the difference between logbook loans and payday loans and things like " can I lose my car with a logbook loan?". That's why you need to learn everything about logbook loans before you commit yourself to one; being scammed with something like this can have severe consequences.
How Do Logbook Loans Work?
- Getting logbook loans isn't difficult – you just need to apply either for logbook loans online or in person, on the high street. You need to own the vehicle, including legal papers, which you will hand over in order to give temporary ownership of the car to the lending company.
- It is very important that you sign a bill of sale, which will enable you to continue to use the car over the period of repayment. This is your legal protection and do not complete the transaction without asking for the bill of sale.
- You make weekly repayments until the full amount of the loan is repaid, and then you get your papers back and reclaim ownership.
- Please note that it is your legal right to repay the loan early, if you so wish to and if you can afford it, but there may be a fee involved. Companies cannot force you to remain in the contract for longer than you wish to if you can repay early, so do not allow yourself to be scammed in that matter. The law is on your side.
What Do You Need to Pay Attention to With Logbook Loans?
There are some possible risks you need to take into account when getting logbook loans, as well as drawbacks and certain limitations. You need to be very well aware of all of these aspects before you sign any papers, lest you agree to something you were not fully prepared for.
You can't make any transactions with the car
Because you don't own the car anymore, while you can still use it, you will not be able to complete any transactions with it, like selling it. So for the entire 78 weeks or however long it takes to pay your loan back, you are limited to just using it, but cannot sell it for money, take a different loan on it or anything else of a legal nature.
The interest is very high
One of the main problems with logbook loans is that the interest rate is massive. Some companies have an interest rate of around 400%. That means that the longer you have the loan for, the more you're going to pay. If you get the loan for the full 78 weeks, you're looking at paying interest that's double the original loan amount.
Now, obviously that's a problem because that is a large amount to pay in addition to the loan, but it also can mean that you may struggle to pay the weekly payment or the full payment you owe at the end. By the end of the final week, you will need to have paid the full amount.
You can lose the car
The biggest problem with logbook loans is clearly the fact that you risk losing your car to the lending company. While that is a real possibility with even legitimate lending companies, it's even more of a concern when you think you might be heading into a scam.
Falling behind on payments with a logbook loan means that the company will eventually repossess your car. However, there are some things you need to be aware of when it comes to logbook loans repossession:
- Generally, you have to fall behind with several payments before they take your vehicle away. If they try to do it after one late payment, that's a red flag.
- You must be notified through a letter that the repossession is scheduled to happen and you have the right to respond within 14 days. Only if you do not respond or cannot repay will the vehicle be taken away. Do not accept for your car to be repossessed if you are not notified ahead of time.
- After repossession, the lender will sell your vehicle. If the full sum you still owe isn't recouped, you are still responsible for paying the difference. However, always look into the transaction, how it was made, how much money they received, etc. before paying whatever difference they claim.
- In order to be able to take your vehicle without a court order, the bill of sale must be registered with the High Court. If it is not, they cannot legally repossess your car, and you should not allow them to take it until they can produce a legal document.
How Do You Make Sure Logbook Loans Are Legal?
Obviously, you want to make sure that any contract you commit to is legal, and with all the ways in which logbook loans can become scam opportunities, it is important to check some things independently before signing the papers.
Have the vehicle valued independently in order to determine the true value of the car. A trustworthy lending company will ask this of you, while a scam one may try to rip you off by assessing the value of the car as much lower than it actually is and then only offering you 50% of its value as a loan.
Make sure that you check to see if the bill of sale is properly registered with the High Court. As mentioned, unless it is, they cannot legally repossess your vehicle without a court order. You can check by applying in writing at the Royal Courts of Justice in London. Please be aware that there is a fee to pay. You can read about all the steps you need to take at the National Debtline
In conclusion, while logbook loans can be risky and opportunities for lending companies to scam you, there are ways to get them legally and safely. Just pay attention to the details and the finer aspects of the transaction and make sure everything is done according to the law.