Logbook Loans for Bad Credit

Updated: March 28, 2024 Author:

If your credit score is low and you’re struggling to get approved for a loan, you might have considered applying for a logbook loan. This is a type of secured loan available in England, Wales, and Northern Ireland (there are similar loans available in Scotland). Logbook loans typically offer the benefit of a quick payout with no credit check – but they carry a significant amount of risk for the borrower.

What is a logbook loan?

A logbook loan, also called a V5 loan, is a secured loan usually taken out against a vehicle you own and have paid off. This means that, like taking out a mortgage against your home, your vehicle is used as collateral in case you don’t pay back your loan.

You can still drive your vehicle while you have a logbook loan, but the lender will have possession of your logbook and legal ownership of your vehicle. Before you receive your loan you’ll need to sign a bill of sale, which hands ownership of the car over to the lender until your loan has been repaid in full, plus interest.

How is a logbook loan paid out?

Logbook loans tend to be paid out very quickly – sometimes even within an hour of approval. This is usually paid as a lump sum straight into your bank account. Some lenders may even offer cash payments.

Can I get a logbook loan with bad credit?

Yes, you can get a logbook loan with bad credit – in fact, logbook loans are typically designed to target people with low credit scores. In some cases, lenders won’t even need to run a credit check when you apply for a logbook loan.

How does this work?

Lenders usually use your credit score to determine how likely you are to repay a loan, which they will then use to decide whether to loan to you and on what terms. If you have a bad credit score, lenders will consider it a high risk that you won’t pay back your loan. You may find it difficult to get a good quote, and may not be able to get a loan at all.

By charging very high interest rates and using your vehicle as collateral, logbook loan lenders have offset this risk that you might not pay back your loan. This is why they are able to lend money even when you have a low credit score.

How much is a logbook loan?

The amount you can borrow through a logbook loan depends on the value of your vehicle. It’s common for lenders to loan no more than 50% of your vehicle’s value, and this amount can range from a few hundred to tens of thousands of pounds.

Logbook loans have some of the highest interest rates, ranging from around 250% to 400% APR. This means you’ll usually end up paying well over double the amount you borrowed.

Logbook loans are typically repaid on a weekly basis over 76 weeks (18 months), but contracts can sometimes be longer depending on the lender. Longer contracts mean smaller weekly payments, but it’s important to consider that a longer contract can be much more expensive in the long run due to astronomical interest rates.

What do I need to get a logbook loan?

To apply for a logbook loan, you need:

  • To be over 18 years old.
  • To have a UK bank account.
  • To have almost paid off, or fully paid off, your car’s finance agreement.
  • A fully road-worthy vehicle, including taxation, insurance, and a valid MOT.
  • Proof of regular income.
  • A V5 logbook in your name.

You must be the legal owner of the vehicle, and there must be no existing loan already taken out against it.

You will need to hand your V5 logbook over to the lender. You may also be asked for photographic ID and proof of address.

What happens if I don’t pay back a logbook loan?

If you don’t pay back your logbook loan, the lender has the legal right to repossess your vehicle.

Once they have repossessed your vehicle, it will usually be sold at auction to cover the cost of the remaining loan.

If the sale of the vehicle doesn’t amount to the cost of the full loan, you will still be expected to cover the deficit. Conversely, if the vehicle is sold for more than the remaining loan, the lender should return the surplus to you.

Does a logbook loan affect your credit score?

Whether or not your logbook loan impacts your credit score depends on whether the lender reports your loan to credit agencies. If your credit is reported, repayment of the logbook loan will impact your credit score the same way as any other loan; paying on time as agreed may improve your credit score, while failing to repay the loan may decrease it.

Can I pay a logbook loan back early?

Due to the high interest rates, you might be keen to pay back your logbook loan as soon as possible. However, there may be early payment penalties built into your contract – check this information and weigh up whether paying your logbook loan back early is worth any penalties.

Is a logbook loan right for me?

Logbook loans are risky and expensive ways to borrow money – but they can be convenient, quick solutions, especially if bad credit is preventing you from taking out another type of loan.

You should carefully consider whether you will be able to repay a logbook loan, and whether you can afford the risk of losing your vehicle.

Before considering a logbook loan, there may be other options available to you that carry less risk. For example, you may wish to look into other types of secured loans, borrowing from credit unions, or “bad credit” loans.
There may also be ways to improve your chances of getting approved for a lower-interest loan, such as boosting your credit score or asking a friend or family member to be a guarantor.