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V5 loans are a great way to take out a loan if you don’t have a great credit record or when you find yourself in financial difficulties and need cash fast. Loans are typically cheaper and easier to obtain if you have some kind of security that the lender can use. Commonly, property is used as the security for a loan, but with a log book loan it is your vehicle that is used as the security.
Most people have a car, and providing it meets certain criteria such as being less than 10 years old or under a specific mileage and you have the logbook then it can be used as security for a loan.
The Benefits of this type of short term finance
If you suddenly have financial problems such as needing to pay a bill fast or you have to make an unexpected payment, it is often very good to know that you can make an application for a loan and receive the money into your account within hours. Even if you have bad credit you don’t need to worry because the application is not based on your credit rating.
There are also downsides of loans against cars and this type of finance is not right for everyone, so make sure you understand what a logbook loan is before you take out any finance. As with any type of secured loan, whatever you use for security will be at risk if you don’t keep up the loan repayments. In the case of borrowing against a car, your car is at risk of being repossessed if you don’t keep up the repayments. You will also need to hand over your V5 document to the loans company until the loan is settled so have that to hand when you apply.
Interest rates are generally higher on loans against cars than they are on other types of loans. If you look around for the best provider however some are far more competitive in their rates than others, so do your research before taking out a loan.
What are the requirements for loans against your car?
It is easy to take out a loan against your car if you qualify when you go through the application. You will need to show proof that you have a regular income either through a job or on a self-employed basis. The vehicle needs to be fully insured and have valid tax and MOT certificates. There should not be any outstanding finance on the car either, or very little. Borrowers also need to be over eighteen years of age in order to be able to take out a loan.
How to apply
Each lender is different but most have websites that you can apply though, or you can just give them a call. If you apply online a loan agent will generally call you back to go through the application with you. They will need to ask for some details about your car and the amount that you would like to borrow. This information forms the basis for the amount that the company can lend to you.
If you are happy with the amount you can borrow and the interest rate offered, an appointment will then be set up for an agent to check your car and documents to finalise everything. Following that, the money will be transferred directly into your bank account.
In many instances this process can take place all within the space of a couple of hours, depending on your availability and the availability of agents in your area.
Settling the loan
This depends on the company you use, some companies allow you to settle the loan when you want and won’t charge you any fees for this. When you apply for your loan you agree on a repayment amount and when that amount should be paid. Your loan might run for 24 months or as little as 3 months, depending upon what you require and the terms of the lender. In most cases you will be required to make a monthly payment which repays the loan with the interest rate added onto it.
If your circumstances change and you find that you can’t pay the regular payment amount you should contact the lending company directly and tell them about your situation.
There are plenty of services to help you if you get into debt but be careful before you do take out finance, especially if you are taking out a loan to pay off another one.
A good loan company will be easy to talk to and if you are having problems making payments, speak to them and try to work out a payment plan that works for both you and them.
How to know which lender to choose?
As you can see on this site and by doing a Google search there are a lot of different lenders. So how do you go about choosing the best ones?
The first step is to look at the cost of taking out a loan, and determining which companies are the cheapest. if there is one that is significantly lower than others then obviously that is going to be attractive. Look for the representative APR of the loans to get a figure for how much you are going to pay back over the course of the loan.
Before you go ahead with a loan from the cheapest provider make sure that there are no hidden charges such as expensive fees for processing documents.
All the lenders that you consider should be a member of and regulated by the Consumer Credit Trade Association (CCTA). This means that the company that is a member has to follow the association’s guidelines which sets industry standards.
A company that offers financial products must legally have a Consumer Credit License, if they don’t they are not trading legally. In April 2014 the Financial Conduct Authority will be taking over the regulation of the industry from the Financial Services Authority (FSA) and the Office of Fair Trading (OFT).
It is important that you conduct these checks before taking out a loan so that you know that the company you are working with has standards that it works to.
Most companies will display industry body logos and company registration numbers on their website.
Think carefully before committing to a loan
Taking out a loan is something that should be thought about carefully as it is easy to get into a large amount of debt. When you are using your car as security it is vital that you know that you will be able to pay the loan back, or your car will be repossessed.
Defaulting on traditional unsecured loans or credit cards devalues your credit rating and you can often work out payment plans to pay the money back. With a V5 loan you are putting up as security something that is possibly extremely essential to your every day life, your car.
Most lenders do checks to make sure that you can afford the loan, however sometimes it is important that you know you can afford it and don’t stretch yourself too far.
Credit Checks on logbook loans
Many lenders are now starting to conduct credit checks on applicants for loans. This means that when you apply for the loan your financial record will be looked at, so the lender can make a decision about whether to lend to you or not.
The fact that you have made an application will show up on your credit record, so it is best to limit the number of loans you apply for. Your record will also show that you have taken out a loan.
This can be good because if you pay off your loan on time and make all the regular payments, it will actually help to improve your credit score and you will be able to take out other types of finance in the future should you need it.
Type of vehicle
The vehicle that you can take a loan out against varies between company. Some companies will only loan strictly against cars. Others will offer finance against cars and vans, whereas others will loan against motorcycles as well as cars.
If you have a vehicle that is something a bit different and are unsure about whether it can be offered a loan against, it is best to contact the various lenders to see if they will be able to help. Some lenders will take on more specialist cars if they have value.
The length of a Logbook Loan
Loans can very in length between different lenders, some offer finance over two years, some over three, and others might go up to five years.
It can depend on the amount that is borrowed, the vehicle and the value of that vehicle. The longer the length of a loan, the more interest will have to be paid on the loan. So the more money that is borrowed and the longer the term of the loan, the more interest will need to be paid.
How to choose between companies
There are a number of companies offering a similar type of loan, so it can be difficult to choose between them. Aside from interest rates, one of the best ways to choose between lenders is to check online reviews to see how satisfied customers are.
How loan applications are made
With most lenders you can either call them directly, or you can submit an enquiry online and one of the companies representatives will call you back.
Some lenders have shops which you can visit and go through the initial application process there.
If you apply via phone or online a representative will normally come out to visit you either at home or somewhere else that is good for you. They will check your car, look over your documents and ask you to sign the credit agreement and bill of sale.
Documents you will need:
- The V5/logbook
- Previous bank statements
- Previous payslips
- Proof of address (utility bill)
- Insurance documents, tax and MOT proof
- Identification (Passport or Driving License)
Regular income needs to be shown
To be eligible for a loan, anyone borrowing will need to show that they have a regular income. Most lenders won’t mind if you are self employed, as long as you can show history of a regular income, that could be enough. Again, each logbook lender varies with their policies, but they do need to make sure they carry out strict affordability checks on all potential customers, as they don’t want to lend to people who can’t afford to pay back their loans.
Most lenders won’t contact your employer when you take out a loan, although it would probably be wise to check before you make your application. They will usually want to know who your employer is, but that doesn’t mean they will be contacted.
Most companies won’t use your personal information and sell it to other companies for marketing purposes. Again, you should check with the lender and make sure they don’t do this.
Reason for needing the money
Most lenders won’t ask you for a reason why you are applying for a loan. What you need the money for can stay confidential. This is different from some other types of loan where the lender will ask you what the money is to be used for.
If you can’t pay your loan
Companies will have different policies when it comes to customers who can’t pay their loans back. As a general rule the best way to deal with a situation where you aren’t able to make a payment on your loan is to contact the lender straight away.
As long as you make contact, the company might be able to give you a little breathing space, perhaps reducing your payment or delaying it until you are able to get the money together.
This isn’t guaranteed but it is something that may be possible if you speak to your lender. The worst situation is ignoring the payment, because that will possibly cause late charges to stack up and could even lead to the repossession of your vehicle.
If you have taken out a loan, you will have to pay it back and there is no getting around that.
Are logbook loans better than other types of loan?
It depends on what you are looking for, some loans aren’t necessarily better than others, they are just more suitable for people with varying circumstances. There are other loans that will be cheaper than a logbook loan because their interest rates will be lower, however those loans could possibly have stricter criteria in regards to who they lend to.
A logbook lender may be able to lend money quicker, often within hours, so it can be useful for people looking for money faster.
Other types of loan such as a bank loan, or using a credit card might be more suitable, so it is important to look at all the options that are out there before deciding on a loan against your car.
Logbook loan companies won’t lend to anyone and everyone, if you have a poor credit record it may be difficult to take out a loan. And if checks show that you can’t afford the payments you will definitely be refused a loan.
Making a complaint about a logbook loan company
Lenders have different ways of dealing with complaints from customers, so it is best to either check their website or call the company to find out what the procedure is.
In most cases you will need to put your complaint in writing and send it to the company in an email or the post.
You will then be sent a receipt that your complaint has been received. You should receive a full response from the company within 4 weeks. If this doesn’t happen, the response should take 8 weeks.
If you haven’t received a response eight weeks after your complaint or you aren’t happy with the result, you can take your complaint further and write to the Financial Ombudsman.
The address of the Financial Ombudsman is:
The Financial Ombudsman Service, Exchange Tower, London, E14 9SR.
You can find more information about the Financial Ombudsman here.
Logbook loans summarised
- Higher interest rates than some other types of loan
- Quicker payment to you than some other loans
- Your car could be repossessed if you don’t pay back your loan
- You need to show regular income
- You can settle the loan early
- Make sure you understand the agreement before you sign up for the loan
- You need to own a vehicle
- Loans are confidential
If you have any other questions you think haven’t been answered here then read our frequently asked questions section which has a list of the questions people often ask.