What Is Logbook Loan Debt?
A logbook loan is a type of loan available in England, Wales and Northern Ireland, which uses a vehicle as security.
They are available online and with high street providers for sums between £5000-£50,000 depending on the value of the vehicle.
When you take out a logbook loan, the lender registers something called a ‘bill of sale’ with the courts. This transfers legal ownership of your vehicle to the lender until you have paid off your debt.
As long as you keep up with payments, you can continue to use your vehicle as normal- but if you fall into arrears, the lender can repossess it without having to take you to court.
Many people rely on their car to get to work and run day-to-day errands, so if their vehicle is repossessed, it could cause serious problems.
For this reason, logbook loans are considered a priority debt- meaning that, like mortgages, payments towards logbook loans should be made before certain other debts with less serious consequences for falling into arrears.
What Happens If I Get Into Arrears?
If you are late to make a logbook loan payment, there is a strong possibility that your vehicle will be repossessed by the lender.
If you know you aren’t going to be able to make an upcoming payment or think you’re going to be late, it is important to let your lender know as soon as possible – it can be very difficult to reverse the repossession process once it has started, so it’s much easier to try and negotiate before things reach this stage.
Most lenders won’t take action after just one missed payment; if you pay weekly, you can normally miss up to four payments before defaulting on the loan, or two months’ grace if you pay monthly.
What Happens If I Default On The Loan?
After you miss several payments, the lender could decide you can’t afford to pay back what you owe and cancel your agreement with a ‘default notice’. If this happens, there are a series of steps the lender will take to repossess and sell the vehicle:
Issue A Default Notice Breaking Off The Loan Agreement
The lender will send a default notice in the post, cancelling the repayment plan you had in place. When this is issued, you have 14 days to repay the loan or reach an agreement with the lender before they repossess the vehicle.
If you want to pay the debt off as a lump sum, the lender may charge you an early repayment fee to do so.
However, if you can’t find a way to pay for the loan upfront, try and negotiate for a gradual payment plan with your lender. It could also be a good idea to speak to a debt counsellor about your options at this stage.
In some cases, the lender won’t be open to negotiation. If this happens, you can still check the bill of sale from when you took out the loan (the lender should have provided you with a copy).
If the bill was not registered with the High Court within seven days of you taking out the loan or if there are incorrect or missing details on it, the lender is not allowed to repossess your vehicle.
You can check here to see what details are required on a valid bill of sale and can check to see whether the bill was registered by contacting the Royal Courts of Justice, here. You may need to pay a fee to check the register of bills.
Give You Notice Of Repossession
If the default notice expires without you having reached an agreement with the lender, they could try to repossess the vehicle. Lenders are required to give at least five days notice before attempting a repossession and are likely to add the cost of towing the vehicle to your debt.
It is a good idea to remove any personal possessions from your car before the date on the notice, as bailiffs may arrive without notice on the day, either very early in the morning or late at night.
Sell The Vehicle
Once the lender has repossessed the vehicle, they must auction it. They must advertise the vehicle for a reasonable market price, and use the money from the sale to pay your debts.
If the money from the sale is not enough to cover your debt, you will receive a bill for the difference. However, this bill us unsecured, meaning it is a non-priority debt (like overdrafts and credit cards).
You may suggest your own repayment plan to the lender if it is too much to pay at once. On the other hand, if the vehicle fetches more at auction than you owe the lender, they must refund you the difference.
Will It Affect My Credit Rating?
In short, yes. As with all lending, when you take out a logbook loan, it’s recorded on your credit file. When you are late to make payments or default on your loan, this gets recorded on your file for other lenders to see.
Can I Make An Appeal?
If you believe you have been unfairly treated by a logbook loan lender, you can register your complaint with the Financial Ombudsman Service.
This independent body has the power to investigate claims of unfair treatment and force lenders to take actions (such as refund loans or issue compensation) without resorting to expensive legal claims.
Paying Back Logbook Loan Debt
Logbook loans are an expensive and potentially risky form of credit if you don’t pay them back. If you find yourself in logbook loan debt, it’s important to be proactive in tackling your repayments to give yourself the best chance of paying it off. Even with a tight budget, there may be some steps you can take to ease the pressure on your logbook loan debt and switch to a lower-risk form of credit.
Try to prioritise your debts. While it is important to pay unsecured debts such as credit cards and overdrafts, the consequences of falling into arrears are not as severe or immediate as with secured debts, like logbook loans and mortgages. If your budget is tight, think about which are the most important debts for you to pay off first each month.
Logbook loans are an expensive form of credit, with many providers charging over 300% APR interest.
If you are eligible for other forms of borrowing, you might find you could save money and eliminate the risk of repossession by opening an unsecured loan elsewhere at a lower interest rate and repaying your logbook loan early.
If you feel uncertain of the options available to you, you might consider speaking to a professional debt counsellor. They can work through your finances with you and help you find the best way to manage your debts.
How Can Love Debt Free Help?
Here at Love Debt Free, we have partnered with some of the UK’s leading Debt help companies.
They have already helped thousands of people reduce and manage their debts, and they can do the same for you.
Choosing an independent adviser means they won’t recommend a scheme unless they are sure it is in your best interests. Their advice is also regulated by the FCA, which gives you an additional layer of protection.
If you would like to speak to one of these debt help companies, click on the below and answer the questions.