Buying a used car? Look out for logbook loans
A recent survey by the HPI has found that 42% of used car buyers have no idea who legally owns a car that has finance owing on it by way of a logbook loan. This means that a buyer of a used car could unknowingly have a logbook loan outstanding on their new purchase which could result in having their used car repossessed by the lender that agreed the finance for the previous owner.
What is a logbook loan?
A logbook loan is a loan taken out by a borrower using their car as security in order to be approved for a loan. Logbook loans have an average APR of 400% and if repayments are missed then the borrower is in danger of getting into debt and having their car repossessed.
It is thought that one in four used cars have outstanding finance on them, which is worrying for the buyers of used cars who simply assume that the car that they are buying doesn’t have any finance tied to it.
Fortunately for those buying a used car from a dealer that later discover that their car has finance on it and is at risk of being repossessed will be protected by Innocent Purchaser Protection (IPP) that will allow the buyer to gain a refund from the dealer and purchase another car.
The HPI has set out some useful guidelines for used car buyers to follow;
Conduct a vehicle history check before you buy – simply visit www.hpicheck.com and enter the registration of the car. This service will help you to determine whether the car has ever been stolen and if there is any outstanding car finance or logbook loan on the car.
If the used car does have outstanding finance owed, you can either chose not to purchase or alternately negotiate with the dealer and the lender so you pay a reduced amount to the dealer and pay off the outstanding amount owed.
Ideally it would be more beneficial to purchase a car that you know does not have any finance attached to it by way of a logbook loan.