Log book loans and personal debts explained

January 9, 2017

If you have a poor credit history and are not eligible for mainstream borrowing, log book loans offer a way to obtain finance quickly. They involve borrowing money against the value of your vehicle, and this becomes the property of the lender until the loan is repaid in full.

This type of loan has come under heavy criticism by money charities and consumer watchdogs, however, due to the high rate of interest applied, and there have been calls for more protection for borrowers. The fact that those applying for log book loans are often already in an unmanageable financial position adds further weight to the argument.

Irresponsible lending affecting personal debt

Research by Citizens Advice shows that between April and September 2013, 127 of the people they helped had taken out a log book loan. These loans represented a much higher proportion than payday loans in the cases scrutinised.

So how do log book loans work, what impact could they have on your personal debt position, and what are the inherent dangers of this type of borrowing?

What is a log book loan?

Also called a vehicle registration document, or form V5C, your log book details the vehicle’s previous and current owners, as well as the dates of purchase, and is used to update the Driver Vehicle Licensing Agency (DVLA) whenever a change of ownership takes place.

One of the main dangers of this type of loan is that your car can be repossessed by the lender if repayments fall behind, and once this happens, a high rate of interest makes it very difficult for borrowers to get back on track financially.

Loans are generally available between £500 and £50,000, and can be obtained from companies on the high street and via the internet. Interest is added weekly, often at extortionate rates of up to 400% (APR), which is why missing a payment can trigger the slide into a huge personal debt situation.

Log book loans in Scotland

In England, Wales and Northern Ireland, a ‘bill of sale’ system is used by log book loan companies, whereby bills of sale must be registered with the High Court if a lender is to have the right to repossess the vehicle at any point. Scotland uses a different system, however, as bills of sale are not legally binding here.

If you already have a log book loan, it could be in the form of a hire purchase agreement or ‘conditional sale,’ in which case you may have some protection under the Consumer Credit Act, 1974. Loan terms will vary between lenders, however, with some offering up to 78 weeks to repay.

In some cases you only repay the loan interest for most of the term, until the final month of the finance agreement when you must pay back the full original amount borrowed. Intimidation of borrowers by log book loan companies has been widely reported in the press, sparking further calls for protective action for consumers.

It’s worth noting that some second-hand car buyers have unwittingly purchased a vehicle with log book loan finance still attached. This means the loan company can repossess the car if the new buyer fails to repay, and the purchaser has little legal redress apart from suing the previous owner.

If you’re struggling to repay a log book loan or have overwhelming personal debt

The high cost of this type of borrowing has caused serious financial difficulty for consumers around the UK. The problem is so widespread that people in severe debt often need to enter a personal insolvency process to deal with the crisis.

Scotland Debt Solutions can offer expert help and advice to Scottish residents struggling to repay a log book loan or any other type of finance, and provide guidance on the best way to deal with high personal debt.

You may be able to improve your debt situation using the Debt Arrangement Scheme (DAS), or be eligible for a Scottish Trust Deed, whereby any debt remaining at the end of the term is written off.

Scotland Debt Solutions has four offices around Scotland, and can offer a free confidential consultation to quickly establish your needs.

John Baird

Insolvency Adviser

Tel: 0800 063 9250

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