Comparisons between borrowing options often list features in a table and leave you to work out what they mean. In practice, the right choice depends far more on your situation: how much you need, how long you need it for and what you can afford to put at risk.
V5 Solutions starts with a quick definition of each option, then walks through three common scenarios to show how they compare in real life.
The Three Options in Brief
Payday loans
Unsecured, short-term loans for smaller amounts, repaid on your next payday or over a few months. They fall under the FCA's rules for high-cost short-term credit, which cap interest and fees at 0.8% per day, limit default charges to £15 and cap the total cost at 100% of the amount borrowed.
Car buy-back schemes
You sell your vehicle to a company for a cash sum and are given the chance to repurchase it within a set period, typically for more than you received. Because it is a sale, you no longer own the vehicle. Arrangements differ widely, including whether you can keep using the car while the agreement runs.
Logbook loans
A loan secured on a vehicle you already own, with no outstanding finance. You keep the vehicle and the keys, and repay in fixed instalments. With V5 Solutions, loans range from £1,000 to £50,000, terms from 18 to 60 months, and the decision rests on vehicle value and affordability rather than credit score alone. Full details are on our logbook loans page.
Scenario One: A Small Shortfall Before Payday
Lee is £250 short for a utility bill due five days before payday. A logbook loan would not fit: the minimum loan is £1,000 and the shortest term is 18 months. A car buy-back would mean giving up a vehicle for a small, brief gap.
A payday loan could cover it, but the cost over even a few weeks is significant, and if repaying leaves Lee short again next month, the problem repeats. Options Lee could look at first include contacting the energy supplier about a payment arrangement, asking an employer about an advance, or a credit union.
Scenario Two: A Larger Bill and a Car to Keep
Amira, a self-employed plumber, needs £4,000 to replace her van's engine, and she needs the van to earn a living. A payday loan of that size would be hard to repay quickly. Selling the van to a buy-back scheme would leave her without the vehicle she relies on.
Her van is paid off and registered in her name, so a logbook loan is one option open to her. She could spread repayments over a longer term, continue driving and settle early with a rebate on interest if work picks up. The trade-off is cost and risk: the loan is expensive and secured on the van. Our guide to spotting extra loan costs shows what to check before signing.
Scenario Three: Ready to Let the Car Go
Dan barely uses his car and needs cash. For him, keeping the car is not important. Selling it outright, at the best price he can find, may give him more money than either a buy-back scheme or a loan, with nothing to repay. A buy-back is only likely to suit someone who truly wants the car back later and can afford the higher repurchase price.
Questions to Ask Whichever You Choose
- Is the firm authorised by the FCA? You can check on the FCA Register.
- What is the total amount I will repay, or pay to get my car back?
- What happens if I cannot pay on time?
- Have I looked at lower-cost options, such as a credit union or a payment plan with the creditor?
All three options are expensive forms of credit. This article is general information, not financial advice. If you are borrowing to keep up with other debts, free, impartial advice from National Debtline or StepChange is likely to help more than a new loan. To understand each step of borrowing against your vehicle, read how logbook loans work.
Your car may be repossessed if you do not keep up repayments on a loan secured against it.
