Table of Contents
- What Is A V5 Loan?
- How Does A V5 Loan Work?
- Can I Get V5 Loans With Bad Credit?
- Will I Lose My Car With A V5 Loan?
- What Are The Benefits Of V5 Loans?
- You can get a larger amount of money
- What Are The Drawbacks Of V5 Loans?
- What Are The Alternatives To V5 Loans?
If you've never heard of V5 loans, then that needs to change, because V5 solutions can be the option you were waiting for to allow you to borrow some money. When people think of secured loans, their minds automatically go to mortgages at the bank, but your home is not your only option for collateral. Your car is an asset! Why no use it to free up money? That's right, you can secure a loan with a car you already own, and it's not difficult at all.
Logbook loans like this can enable you to borrow money, while still enjoying the convenience of driving your own car, so they're definitely an option worth exploring. If any of this sounds at all intriguing, go ahead and keep reading to find out all about how they work, what are the advantages and drawbacks, and whether this type of lending is the right choice for your needs.
What Is A V5 Loan?
Here's what you need to know about a V5 loan - it's a secured loan that you can get on the high-street and in exchange, you give the lender temporary ownership over your car. That includes the registration and logbook or V5 document, which is why this loan is sometimes referred to as a logbook loan or V5 loan. Essentially, you are using your vehicle as collateral to secure your loan, but that doesn't mean the car is taken away and kept somewhere so the dust can settle on it while you repay your loan. You are allowed to use it in the meantime. How does this whole thing work? Read the next section to find out.
How Does A V5 Loan Work?
Ok, so as I already explained, a V5 loan or logbook loan works like most secured loans, in that you offer an asset (in this case, your car) as collateral in exchange for the money. The best part is that you get to continue using your car, so you're not missing out on anything. Actually, it's a win-win - you use your car like you normally would and you get a loan that you can repay in regular instalments.
What do I need?
In terms of requirements and thing you need for this loan, the most important part is that you need to have a vehicle. You need to own this car legally, and it has to be in your name. You must have all the documentation necessary, like the logbook and registration, and the vehicle needs to be of a higher value than the loan you are getting, but we're going to talk more about this in a second.
How much can I get?
The actual amount you get will depend on the car you are putting up as collateral. The more valuable the car, the higher the loan. Of course, there are some minimum and maximum amounts you should keep in mind. Generally, it is expected that you will borrow at least £250, so the car has to be more valuable than that, with the maximum loan going as high as £50,000.
Responsible borrowing behavior dictates that you should only borrow as much as you need. That means that even if you could be offered more for your car, you should limit yourself to what you know you need and can pay. Remember that the more money you borrow, the more you will have to pay back.
Of course, then you have another issue - is it worth putting your more valuable car as collateral for a comparatively smaller loan? On one hand, a smaller loan is more likely to be paid off quickly and easily. On the other hand, should something happen, you risk losing your car for a small amount of money. It's definitely something to think about carefully.
How do I establish the value of my car?
The value of the car is set after a formal assessment. Now, this should be done by an independent, third-party entity, and any reputable lending company will insist on it. The reason for that is that the lender has a vested interest in assessing your vehicle at a lower value than it actually is, in order to give you less money than it's worth. If you default, however, and they get to keep the car, they earn a sizable profit as a result of scamming you.
Keep in mind one thing - you will not be offered the full value of your car. So, assuming your car is assessed at £6000, you will not receive that full amount, but only a certain percentage. Some lenders will even go as low as 50%, so take that into consideration when deciding how much you want to borrow.
If a V5 lender insists on doing the assessment themselves, look for a different company. There is a very high chance that they are untrustworthy.
What are the repayment terms like?
Like most other loans, you will repay the V5 loan in regular instalments. However, the time frame may not be as generous as you may think. The general maximum repayment term is of just 78 weeks. You may repay earlier, if you can afford to, and you will pay interest. If you agree upon it with the lender, you may be able to pay the interest charges at the end of your repayment term.
What rates can I get?
When it comes to interest rates, I don't have good news. While the APR is lower than on some unsecured loans, it still comes out to more than 400%, which can be extremely expensive. Depending on how much you borrow, you could even pay twice the amount you took in interest alone. For example, if you borrow £1,500 for the maximum term, you will end up paying over £4000 by the time the 78 weeks pass. That is a lot of money to overpay, and just think how much you could end up paying on a larger loan.
Who offers V5 loans?
To find a loan like this, you just have to search for either V5 loans or logbook loans. The easiest way is to search online and make the application online, as well. All you have to do is fill in the application form with the relevant information, and then provide the necessary documentation in order to close the deal. You should also be able to find V5 lenders on the high street, but be make sure to check multiple establishments before choosing one. You want to have some certainty that they operate in good faith and will not try to scam you.
Can I Get V5 Loans With Bad Credit?
I'm sure you're wondering what happens to people who have a poor credit history. Can you get logbook loans if you have bad credit? And will the conditions be terrible?
The major advantage of secured loans is that the decision of whether or not to loan you money is not based entirely on your credit history. You are offering a valuable asset that will act as collateral and effectively secure the loan for the lender. If you fail to pay your loan, then they keep your car in order to make up for the money they lost, but we'll talk more about that in a second.
For now, what you need to know is that yes, you can get loans on your car even if you have poor credit! A logbook loan can be the ideal way to borrow money without being limited by your credit rating. In addition, it can even increase it. Every time you successfully pay off a loan on time, your rating improves, thus opening up new possibilities.
Will I Lose My Car With A V5 Loan?
I'm sure one question keeps coming up and it's probably giving you some anxiety - can you lose your car if you take out a V5 loan? The answer is that yes, that possibility unfortunately exists, but it is in no way guaranteed that they will repossess your vehicle. As long as everything goes according to plan and you make your payments, you should get your car back. If, however, you end up defaulting on the loan, then yes, the car can be repossessed. But let's take a look at how that process goes.
Will they take my car if I'm late on a payment?
First of all, you should know that they won't immediately show up to take your car once you're late on one payment. You'd have to have fallen behind on several payments before repossession is on the table. So, don't panic if you're late one month. In fact, if you're having trouble paying or you know you won't be able to make the next instalment, contact your lender and explain your situation. Chances are you will be able to work something out.
Can I wake up and find my car gone?
Second, even if you do fail to repay over several months, they will never just show up and take your car, out of the blue. First, you receive a letter notifying you of your payment paucity and you have 14 days to respond to this letter. If you do respond, you can work out an agreement or new repayment schedule. If you do not, they will then come to take your vehicle.
Are they entitled to take my car?
According to the documents you've signed, yes they are legally entitled to repossess your car. However, that is only true if the bill of sale is registered. The bill of sale is one of the documents you sign upon closing the logbook loan agreement, and it is the one that enables you to continue using your car while repaying the loan. However, this document must be registered with the High Court in order for it to be legally binding. Without this registration, the company is not allowed to come take your car and they would need to get a court order to do so. You can check whether or not this registration took place; you can find out how at National Debtline.
Is there anything else I need to know?
Something you definitely need to keep in mind is that, should your car become repossessed, it will then be sold in order to recoup the rest of what you owe. However, if, for whatever reason, the company does not make enough from the sale to cover the rest of your debt, you will still be liable for the remaining amount and you can be sued for it. If this were to happen, you would have to look into the sale of the vehicle and make sure that the information you receive is true. Sometimes, a company will try to pass the sale off as lower than it actually was, in order to try to extort more money from you.
What Are The Benefits Of V5 Loans?
V5 loans come with advantages and disadvantages, so let's look at the PROs, first. Why should you get a logbook loan? How will this be beneficial for you, and what are the most important and most advantageous points to consider?
You can continue to use your car
One of the major advantages is that basically, nothing has to change. The fact that you have handed over ownership of your car doesn't have to mean anything, because it doesn't affect your everyday life. You are free to continue using your car as you normally would, and you get the loan, as well. And you can continue to use it for however long it takes to repay your loan. As long as you stay on top of your repayments, you can have your cake and eat it, too! And isn't that what we all want?
You can get one with bad credit
A poor credit history can come between you and a big pile of money if you're trying to borrow from the bank, for example, but in the case of V5 loans, that is not a concern. Yes, it is possible to get a loan even if your credit score is not the greatest. Because your vehicle acts as security for the loan, the lender does not have to rely on your score in order to assess the risk you present. That enables you to borrow large sums of money even if it wouldn't have otherwise been possible.
You can get a larger amount of money
The problem with loans is that there are so few options for high amounts. In order to get a decent sum of money, you have to jump through bureaucratic hoops, or you have to have a virtually impeccable credit rating. V5 loans enable you to get a secured loan without endangering your home and the amount you get is based on your car. This can open up possibilities for a business investment, a house remodel, a more expensive purchase, etc. When you need a large amount of money that is not easy to get at regular high street lenders, a V5 loan can be the solution you need.
What Are The Drawbacks Of V5 Loans?
Where there are advantages, there are also disadvantages, and it's only fair to also take a look at the CONs of this lending option. Should you be running away from anything? Any aspects of the process that you should be aware of? What issues have other people had with logbook loans?
You risk losing your car
Clearly, the biggest drawback of this kind of lending is that, at the end of the day, you do risk having your vehicle taken away. Of course, this does not happen automatically and normally, this should not become an issue. However, circumstances change all the time, and there is no telling what can happen in the few months it takes to pay off a large loan. You can lose your job, or you can have other major expenses come up and you end up not being able to afford the repayment instalments anymore. Once you fall behind, the risk of having your car repossessed becomes very real.
You can't sell your car
The other thing is that while you are still free to use your car, and that is a massive advantage, you cannot carry any legal transactions involving your car, such as selling. So, if you are repaying the loan over a year and a half, for example, you are stuck driving your car and you can't sell it if you need money, or if you would like to trade it in for a newer or different model. This may not seem like the biggest issue in the world, but not having that freedom can feel very stifling and frustrating, to say the least. Handing over ownership of your car is always going to feel uncomfortable, no matter how temporary it is.
The interest rate is very high
You're probably reading this, thinking "Ok, but since this is a secured loan, then the interest rate must make it worth it, right?" Sorry to dash your dreams, mate, but the interest rate is not as low as you think it is. But it might still be worth it for some, that is up to you to decide. But you can expect an APR of around 400%, which is not low, by any means. In fact, you can get unsecured loans that come with a similar interest rate. It's true that they offer amounts as large as logbook loans, though.
Your lender should only allow you to borrow what you can repay. If they do not seem concerned with your ability to repay, then you are better off finding a different lender.
What Are The Alternatives To V5 Loans?
Ok, this is all well and good, but what if you don't have a car? Or you are nervous about taking the risk of having your vehicle repossessed? Or perhaps you just don't feel like it's a good deal. Are there any alternatives you should consider? Here are some options you may want to explore.
- Other secured loans - as I mentioned, you can also secure a loan with an asset such as a house. The difference is that the interest rate is much smaller, and the repayment term much longer.
- Payday loans - there are all sorts of payday loans you can consider offered on the high street. If you can stomach the interest rate, then you can borrow money without putting your car down as collateral.
- Doorstep loans - is there anything better than money literally coming to your door? Doorstep loans are the most convenient type of unsecured loan, with all the steps of the process done through an agent that comes to your doorstep.
- Credit cards - the credit card can become your most reliable friend in times where you need some financial help. If you can afford to pay off the amount and the interest rates, you're ok. If you can score a 0% interest card, you're golden.
Hopefully, you were able to learn everything you needed to know about V5 loans. If you own your own vehicle and you need money to finance a large purchase or some other significant expense, it can be worth looking into this option. While it comes with a pretty scary risk (losing your car), it also offers multiple advantages that can be very tempting. As long as you know you can stay on top of repayments, there is no reason why you should not be able to successfully carry out this type of transaction and benefit from a loan and the use of your car at the same time.