Logbook Loans: Beware of the Risks
People who are buying second-hand cars are at risk of losing their car due to the inheritance of debts by their previous owners, warns the Citizens Advice.
The aforementioned says that one out of five people reported having problems with logbook loans, resulting to the repossession of their cars even though they are not the borrower that secured the debt.
A logbook loan is a term referring to a bill of sale securing a loan on a debtor’s vehicle, in which the lender is the one who holds the vehicle’s logbook – or in other words, the vehicle registration certificate.
Often with high interest rates, applications for such loans can be completed in less than fifteen minutes, the applicant must show sufficient proof of income to be approved. They are used for people who have bad credit rating that are desperately in need of cash. A recent research conducted by the Financial Conduct Authority (FCA) says that the average size of a logbook loan is £1,000 although it can be as high as £50,000.
A borrower taking out a logbook loan uses their car as security. These can be compared to loans by pawnbrokers wherein this matter, the lender retains full ownership of the car until the loan or debt is finally cleared. But unlike loans by the pawnbrokers, someone who takes a logbook loan can still drive their car as long as they are meeting the agreement with the lender regarding repayments.
Citizens Advice are warning the public about this scheme. Someone who buys a car with a logbook loan secured on it by their previous owner could end up being chased for the debt – leaving the new owner no choice but to make and meet the repayments, or if unable to meet repayments give up their car.
According to a survey conducted by the CAB, it revealed that 63% of 874 drivers who had purchased a second-hand car did not check if their car had an outstanding logbook loan attached to it, while two out of five people surveyed never heard of a logbook loan.
It also highlighted the increasing numbers of logbook loans of 61% increase from year 2011, with about 60,000 loans set to be taken out this year.
Earlier this month, the FCA warned different lenders offering logbook loans saying that they will be shut down if they do not “dramatically” improve their standards and procedures.
CAB chief executive Gillian Guy said: “”Innocent drivers should not have to bear the burden of someone elses debt. CAB also wants the law to be changed so that the lenders cannot repossess someones car if they are not the original borrower, giving fair treatment and protection to the borrowers.