Should Logbook Loans Be Severely Restricted?

There has been a lot of outcry recently that logbook loans should be restricted or even banned in some cases.  Whether or not this should happen is something that is up for debate.

In my opinion the answer is no, they shouldn’t be banned but some restrictions are good for the industry.  In fact restrictions are already taking place because loan companies are now being watched by the government and action is being taken on companies who flout strict rules.Stop logbook loans

The rules that have come into force from the FCA are strict and any company that doesn’t meet them can be taken out of business as well as punished financially.  The FCA have been known to fine companies for past practices, even if those practices aren’t carried out by the company any more .  This means that even if some companies have cleaned up their act, they could still be asked to pay back consumers they have taken money from dishonestly.

Large companies mean large fines

For companies with a large customer base, this means huge back payments for mistakes they have made in the past.  This could potentially put some lenders out of business.  Just look at the PPI scandal where companies have been forced to set aside billions of pounds in payments to customers they have taken money from.

This is very good news for the consumer as they are now protected, and some could potentially receive money back from lenders that have mislead them in the past.

The argument as to whether lenders should be restricted has almost certainly been answered, lenders have been restricted by the FCA already.  If they don’t follow the FCA’s guidelines they won’t be allowed to trade  any more, it’s that simple.

Could more be done?

The restrictions on logbook loans do seem to go far enough.  Banning the loans surely wouldn’t be the right thing to do as it would mean people would search for another alternative, possibly an illegal one.  This just moves the problem on elsewhere, it doesn’t remove the fact that the demand for loans is always going to be there.

It isn’t until consumers learn more about the dangers of taking out loans and the possibility that they can find themselves in debt that the demand for loans may fall.  This is something that will take many years to implement but it will help society if it is.

Lets not just take these loans away altogether, lets see how well the FCA clean up the industry and at the same time teach people about the dangers of debt.

Do Lenders Need To Repossess?

Repossessions are unfortunately common in the logbook loan industry because customers don’t always stick to their payments.  Lenders then have to instruct a repossession company and pay for that service.Car on tow truck

These are all extra costs for the lender which they could do without.  Whenever the media talk about logbook loans they often seem to make out that lenders love to repossess vehicles and they can’t wait to do it.  A good logbook loan company will give customers plenty of time to make payments that are overdue.

In many cases lenders will allow customers to go into a payment plan with reduced payments or payment breaks, so they can pay back what they owe.  If the first thing lenders did was to repossess every car because of a late payment, they wouldn’t be able to cover their costs.

The media love big stories

Some of the stories that make it to the media are the worst case scenarios, generally when someone has bought a car not knowing it had a logbook loan against it.  The customer should have carried out an HPI check on the car before they bought it, to check if it was clear of finance.  Of course the person who sold the car on knowing there was a loan attached to it is very much to blame too, but unfortunately the lender needs to recover their costs.  Good lenders will generally come to an agreement with the new owner in regards to the amount that can be paid to keep the car.

Unfortunately repossession is a necessary evil of the industry and it doesn’t just happen with vehicles.  Bailiffs repossess peoples belongings and houses when they can’t pay other types of loan.  Mortgages companies do this to people’s homes, yet the industry doesn’t have as bad a reputation as lending against vehicles.   Lenders in the past may have gone too far, but they are generally on rare exceptions.

Lenders do need to repossess, but they don’t like to, and do it to cover their costs.

Small Value Loans Increasingly Common

Most of the time I would never say that it’s advisable to take out a loan for something like Christmas, but a lot of logbook lenders offer loans for £500.  Statistics do show that loans are smaller around this time of year because people are looking for a small amount of cash to buy Christmas presents.Pounds

The Money Advice Service says that people expected to spend £487 on Christmas last year, which is actually less than the year before, but it confirms that a £500 loan will be about enough to pay for the average Christmas.

Borrowers know that they will have the rest of the year to pay the loan back if needed.  Some will take that long, whereas others will repay the loans back early.  Some might even take out another loan to pay back the original one, this really isn’t what they should be doing.  It’s the people who can manage their money well who are able to take out a short term loan and come out the other side unscathed.

Lenders do have flexibility

The figures from these lenders does show however that payment defaults are high.  Lenders can be more flexible than many outside of the industry think.  A lot of people’s opinions on the short term loan industry are that if you default on a payment, that’s it, you’ll have astronomic charges and if you take out a logbook loan your car will be repossessed.

For most lenders this is the last resort because it costs them to chase debts.  It is far easier for them to come to an agreement with customers who aren’t able to make payments and give them a chance to pay at least a reasonable amount of money back.  These companies would be far happier receiving some kind of cash into their bank accounts, rather than nothing that they might otherwise receive.

Profits have to be made

At the same time, lenders are not charities and their business model is based on making profits from lending out money and receiving interest payments on this.

Payday loans have traditionally been used over Christmas because they are for smaller amounts and are meant to be over a short period of time.  But borrowing against a car can also be a way to raise cash, pay lower interest rates and also have longer to pay the loan off.  It can generally be paid off over 2 years if really needed, although this will result in very high interest payments, especially with some of the more expensive lenders.

Image Problems For V5 Loans

I don’t think that the image that the logbook loan industry has is particularly right at the moment.  In the UK regulation is extremely strict and if any company steps out of line there are not only fines but retrospective fines.Newspaper

This means that even if a company has mislead customers and gained from it in the past, but have since cleaned up their act, they can still be fined and made to pay the money back by the Financial Conduct Authority.

For firms that have completely changed management and started operating in a more moral way, this can be particularly difficult to take.  Should businesses be punished for mistakes they have made in the past?  People who have lost out financially will say so, and I think that the majority of the public will probably also agree, perhaps that is all the evidence that is needed.

We have seen in the payday market that the largest companies have been asked to pay back hundreds of thousands of pounds.  Logbook lenders aren’t that large, but they could be hit with fines that aren’t too far off this.  This would probably put most of them out of business straight away.  This may well be the aim of the Financial Conduct Authority, to put the worst offenders out of business by making them pay for their mistakes.

It remains to be seen whether the big, well publicised action against the payday lenders was something to create publicity around the action that was being taken or whether it will carry on in such a strong way.

If logbook lenders were using poor, old fashioned tactics to extract more money from it’s customers it would be a completely short sighted approach because they would be risking hefty fines and other action.  It isn’t worth it, they are better off creating a sustainable, well run business that will run smoothly over the long term.  In any kind of business, regulated or not this is the way to success, offering a great service to customers.

Lenders are definitely doing this more, but it will take a long time for the industries reputation to improve, which is a a shame.

Holiday Season Means Prime Time for Logbook Loans

As with many businesses, logbook loans are seasonal, they are more in demand when it is common for people to need extra cash.  This means that just before the summer holidays and Christmas are two times that show particularly peak demand within the industry.Pound coin

The industry responds to this by offering deals for customers to entice them in during the Christmas period.  This can generally be something like a payment holiday or an introductory interest rate.  There is so much competition in the market that they need to do this, it is almost essential to make the best use of this time of the year.  Some lenders dress up their websites to look seasonal, a good example is who have embraced this.

Special offers

For the customer this is great news because they can get some of the best deals at Christmas if they shop around.  It’s actually quite difficult to find logbook lenders on comparison websites, so the best way to shop around is to visit each lenders website by doing a Google search and either checking their website or giving them a call.  When you call them you can ask what their latest offers are and see if they have anything available.  If you qualify for a loan, they will want your custom and so will try to entice you with a promotional deal.

A logbook loan customer is worth a good amount to a lender because the longer they are a customer, the more interest they will pay on their loan.  Many lenders offer no early settlement fees, however the most profitable customers are those that pay over the long term because they pay more interest.  Most lenders will advertise that you can pay back early, and it is an incentive, but they know that a certain percentage people in general won’t pay their loans back early and will pay the full interest for the term of the loan.

Understanding how logbook lenders work

For consumers, being able to understand the workings of the lenders means that they are able to find the best deals and know when those deals are most likely to be available.  Unfortunately many of those who take out loans do so without carrying out adequate research.  This is especially true in the bad credit loans market where borrowers are almost grateful to have a company accept them for finance and so will rush to get the cash before they can be refused.  By doing research they just might be able to find a far better deal, in some cases a much lower interest rate.

It isn’t just loans against cars that pick up at this time of the year, the Christmas holidays are a boom time for just about all other lenders.  Demand dies off over Christmas and picks up again strongly in January, mainly due to the fact that people have bills to pay and have overspent at Christmas.

Short term loans aren’t the only way

The message that the government through websites like the Money Advice Service is trying to get across is that there are other methods of raising finance other than short term loans with high interest rates.  The main message is that people should budget so they don’t need to borrow money from payday or logbook lenders.  By carefully managing finances throughout the year and not overspending at certain times, such as Christmas or summer holidays, people will be les likely to need loans.

This is of course easy to say, but less easy to commit to when you are struggling to pay bills, and it can feel patronising when you are being told how to manage your money when you are on a low income and don’t overspend at all.  Everyday bills are expensive for many people and it leads to then struggling to live, let alone spend on holidays.

Choosing The Cheapest Loans

Short term loans are nearly always chosen by people because they are in need of cash fast.  They need money to pay for something quickly, but don’t have the funds.Comparing

Problems arise when this speed can leave them vulnerable to choosing the worst deals because they opt for the first loan that they find.  In the short term loan market there are a lot of variations in interest rates.  Some providers can charge extremely high rates, whereas others go in low to undercut the market.

The high rate lenders often get away with this because they have been in the market for a long time and they prey on borrowers who don’t shop around much.  Loans that don’t carry out credit checks are snapped up by some borrowers mainly because they are accepted for a loan when other possibly cheaper companies have failed to offer them money.

Comparing online for the best deals

Comparison websites can be the best way to choose a good deal because at least you can see each lender side by side.  It is important to be careful however because not all comparison sites offer clear comparisons on interest rates.  Look for the fixed interest rates over a certain period of time.  For example, a good representative example would be a loan of £1000 taken out over 12 months at a certain fixed interest rate.  If that loan is compared with another loan for £1000 over 18 months the APR will be different, so it is important to read the small print.

Comparison sites may not always be as impartial as you may think.  Remember the loan company will probably be paying to be placed there and possibly the more they pay, the more prominent on the page they are likely to be.

Research is very important

This is why it is crucial to do your own research and not rely on anyone else, especially anything online that is run for profit.  There is no substitute for finding the best interest rate for yourself and a reputable company to go with that rate.  Another trick that lenders may use is to advertise a lower rate on a special deal and then when you apply for the loan they will tell you that you don’t qualify for that rate and will need to go to a higher interest rate.  They are using the low rate to hook you in and then sell you something different.

There is not one particular short term loan that this is most prevalent with, it happens with them all.  Unfortunately up until recently there has been a lack of understanding about short term lending, but it seems that now consumers are wising up to the market and are becoming more cautious when borrowing.  This is due to campaigns run by the media, together with charities and government organisations.

Educate yourself as much ass possible

With the internet being relatively new it became incredibly easy for lenders to set up online and offer deals to customers without anyone looking over their shoulder.  This is slowly changing as people are educating themselves, however there is still a gap there and consumers need to be more aware about the pitfalls of loans than they ever have been before.

Are Logbook Loans Risky?

Logbook loans are designed for those who may not be able to borrow money from traditional means, for instance a bank loan.  With a V5 loan you do not need to have a fantastic credit history but on the downside you will have high interest to pay, as with most short term loans.   However logbook finance is a risky way to borrow and there are lenders who are waiting to trap those who may not necessarily be aware of the pitfalls of borrowing money in this way.Risky loans

No credit checks

Lenders promise quick cash without the need for a credit check, which is likely to seem attractive to those who have no means of securing the funds elsewhere.  These types of loans may seem similar to every other loan but they have different risks which makes this method different and extremely risky for those who may already have a poor financial history.

People might have a rough idea of what a logbook loan is and in simple terms it is similar to a mortgage in respect that a mortgage is secured against a house and a logbook loan is secured against a vehicle.

The lenders will offer anything from £500 to £50,000 depending on the official trade value of the vehicle you are borrowing for, which is usually up to 50% the vehicles trade value.

Bill of Sale

In order to secure the debt when the paperwork is being finalised before the funds get transferred, a temporary Bill of Sale will be signed and the borrower will hand over their logbook.  The borrower will be able to drive the vehicle although the temporary Bill of Sale gives the lender full ownership of the vehicle until the customer has paid the loan back in full.  Not only does the Bill of Sale give the lender full ownership, it temporarily allows them to repossess the vehicle if the borrower fails to keep up with the payments, without a court order.

As these kind of loans are short term they usually run for a number of weeks and are generally paid back by direct debit, or the borrower may call up monthly to repay this.  Some lenders might charge early settlement fees, so it is important that you check to see if this applies to your chosen lender if you feel this is something that might affect you.

Most of the time you will be paying back more than the original loan, which is why you need to be certain that you are in desperate need of this cash and that you are able to repay the money as most of those who miss a single payment end up in financial difficulty and struggle to find a way out.

Consequences of non payment

One of the serious aspects of taking out a logbook loan are the repercussions that could occur if the customer were to fall behind with the repayments.  When the customer signs over the vehicle in order to secure the loan they will do this with the knowledge that the vehicle will be repossessed if they fail to keep up the payments of the loan.  The company will be forced to sell the vehicle in order to recover the defaulted sum.

The circumstances in which the vehicle can be repossessed vary from lender to lender,  but most will not take action to repossess the vehicle until several payments have been missed.  This will be used as the last resort as it has been proven to be a costly procedure.  Depending on the company some may charge for every phone call and letter they send out.  They will also need to pay a specialist repossession agency in order to collect the vehicle, which ends up running into hundreds of pounds.  All these extra charges end up being combined together and may make it impossible for many borrowers to repay this debt, let alone recover the vehicle.


Are all V5 Loans the Same?

A quick look around at some of the main logbook loan providers and it will look like each of them are offering the same service.  Fast cash within hours and you can borrow flexible amounts.Comparing loans

Interest rates

However this isn’t always the case.  Lenders have varying interest rates on their loans.  Some lenders have far higher interest rates than others, they may have streamlined their costs and are able to offer a cheaper service, or they are trying to undercut the competition.  Whatever the reason, you can save a good deal of money by using one of the cheaper lenders.  Use a site that compares the different providers and shows you the interest rates side by side.

Administration fees

Not all lenders include all their fees in their interest rates, they may charge an administration fee to get the loan up and running.  If you can avoid this fee it could save you money and there is no point in using a particular lender if you can find exactly the same deal for cheaper elsewhere.

Late payment fees

If you are unfortunate and can’t make your monthly repayments, find out what the fees if any are for not being able to make the payment.  Some lenders will not charge you any fees, only interest, whereas others might charge a fee for not paying on time.  Ask about this before you take out the loan.

Personal service

Some lenders will come to you to finalise the loan because  they have agents nationwide, whereas others will ask you to go to one of their shops or offices.  What is easier for you depends on your situation, however many find it easier if a lenders representative can go to them or at least meet them in a convenient location for them.

Knowledgeable customer service team

When you speak to the advisors at the lender do they seem knowledgeable and able to answer all of your questions?  If they are then this is a good sign that they are a good company to work with.  This is only none of the indicators you should look at, but it can help.


Think Before Taking Out a Logbook Loan

When doing any kind of financial deal it is always best to prepare for it before hand and run through the various options that are available to you.  It rarely pays off to just go ahead with something and hope that it goes well without putting thought into it.

When taking out a logbook loan it is vital to make sure that you have looked at all the different options available to you before you agree to the loan.  Don’t just go to the first company you see advertised because you think they have a good deal.  You might be missing out on other deals which will save you more money or be better suited to you.

Analyse different lenders


Not every company has the same track record either so check the various providers to see if they have good ratings on review websites or do a Google search for them so you give yourself a better idea of the customer sentiment towards them.

The V5 loan industry has been notorious in the past for lenders being too happy to repossess cars and for poor customer service.  Lenders thought they could get away with treating some customers badly because the people taking out loans had no other options and they were desperate.  They could charge very high interest rates and recall loans as soon as they were defaulted on.

Luckily most companies do not operate in that way any more, partly because the market is regulated now.  However it is still important to check whether a company has good credentials and treats it’s customers well.

Is a V5 loan right for you?

Think carefully about whether a V5 loan is actually going to help you.  Do you think you will be able to pay it back quickly?  Are you using it for an essential purchase?  Do not take short term loans out if you are unsure you will be able to pay the money back.  This is very important because if you can’t pay the loan back you could lose your car to the lender, which means you will be even more out of pocket than you were before.

Some people find they end up in mountains of debt because they take out loans to cover other loans and it all adds up, causing them a lot of stress.  Make sure you don’t find yourself in this position.  If you are having trouble paying loans back, speak to someone as quickly as possible and find qualified loan advice.


Why Logbook Loans Are More Expensive

The short term loan market is notoriously more expensive than other areas of the finance industry.  This is mainly due to the simple reason that people will pay more for credit when they need cash fast and are running out of options.Debt Calculator

Logbook loans are no exception to this and they also have the target market of people who have poor credit records and so on’t have many options for finance left.

Because V5 loans are by their very nature short term, interest rates are also higher because the lender needs to make their profit in a shorter time scale.  A mortgage loan is for an average of 25 years, which means that the lender can charge lower rates because they are going to be earning interest payments for 25 years.  A logbook lender could only be earning interest payments for a matter of months, so lending the money needs to be worthwhile for them.

Borrowers are willing to pay more for short term loans because in some cases they are desperate for cash.  Lenders know this and so can charge high levels.  Luckily in a capitalist society what keeps interest rates down is the level of competition amongst lenders.  A new lender can enter the market and make quite a big impact by offering very low rates, this is a good way to establish a customer base.

In the case of logbook loans some lenders have been able to reduce costs and offer loans at significantly lower rates than their competitors, putting themselves in a good position.

These loans are only meant to be short term

Short term loans are easy to obtain but customers should not take them out lightly and they shouldn’t be used as a long term loan.  They can put people in financial difficulty quite quickly if they are used in the wrong way.  In the past these type of loans were only used very occasionally, however with the rise of the internet it has become easier to obtain a loan and it is more common to get into debt.

People used to be more frugal with their money and would only buy something when they could truly afford it.  Society has changed in recent years, meaning people are more comfortable with going into debt.  In the UK debt levels have risen significantly.

The following video looks at the debt problems in society in the UK.