How do Logbook Loans work?
If you are trying to obtain finance but have a poor credit history then you may well have come across something called a logbook loan. If you are a little unsure as to what they are and how they work, then take a few moments to have a read through this simple guide.
Compared to many complicated financial products, the way a logbook loan works is quite simple to understand. The key difference between this and other kinds of loan is that the loan is agreed using your vehicle as security. How much you can borrow depends on the value of your car, but you don’t have to stop driving the vehicle during the course of the loan. You simply hand over the ownership documents, continue driving the car while also making use of the funds, and receive them back again when the loan is repaid. If you cannot repay the loan, the provider recovers your car in lieu of payment.
What this means is that a far wider range of people can access logbook loans. If you have poor credit that limits your access to other loans, but you have a car to use as security, you can use a logbook loan to access funds that could help you with anything from an unexpected expense to a financial emergency.
A step-by-step look at logbook loans
Different loan providers each work in slightly different ways. However, if we use market leaders such as Auto Advance as an example, newcomers to the logbook loan can get an idea of the general process from start to finish.
Step 1 – Prepare your vehicle. This is a recommended rather than compulsory step, but it could boost the value of your car and therefore the amount you can borrow. It involves getting essential repairs carried out, ensuring your car has its MOT and getting all of your documents in order.
Step 2 – Apply online, over the phone or in person for a logbook loan (also known as a V5 loan). You will need to have to hand the car’s logbook or V5 document which proves ownership of the car, as well as proof of address, your identity and recent wage slips or bank statements to show that you can afford to repay your loan. A responsible lender will always ask for these things, so as not to lend you money you can’t afford to pay back.
Step 3 – Receive an offer based on the value of your vehicle.
Step 4 – The details of the agreement are finalised. Many logbook loans offer flexibility in the time period for repaying your loan, and some offer the chance to repay early with no penalty. The payment terms will all be explained and agreed, and both parties will then sign a loan agreement. This is the point at which you hand over your V5 document. This makes the loan provider the legal owner of the vehicle.
Step 5 – Funds are paid immediately via your preferred payment method.
Step 6 – The loan is repaid as per the agreement. Once all repayments have been made, the V5 document is returned and you once again become the legal owner of the vehicle.
In some cases, logbook loans can be arranged, agreed and paid in the same day. Provided you have done your research, checked all the terms and conditions carefully and are 100% sure you can repay what you borrow, this fast turnaround could give you access to much-needed funds quicker than many other types of loans.