There are two main ways to borrow money using a vehicle you own as security. One is car pawn, where a pawnbroker holds the vehicle until you repay. The other is a logbook loan, where the loan is secured on the vehicle but it stays with you. Both put the vehicle at risk, yet they work very differently in everyday life.
V5 Solutions explains each option below and then looks at two scenarios to show when one might be more suitable than the other.
What Happens to Your Car Under Each Option?
Car pawn
Pawnbroking works on a simple principle: you hand over an item of value and receive a loan against it. With a car, that means delivering the vehicle to the pawnbroker, who stores it for the length of the agreement. You cannot drive it until the loan and interest are repaid in full. If you do not repay, the pawnbroker is entitled to sell the vehicle.
Logbook loan
A logbook loan secures the borrowing against the vehicle through a legal document rather than physical possession. With V5 Solutions, that document is a Bill of Sale, which gives us ownership of the vehicle as security while you continue to keep and use it. For customers in Scotland, and for some other UK loans, the agreement takes the form of a Hire Purchase agreement, signed online.
You hold on to the keys, the V5C and the spare key, and you drive as usual. When the final payment is made, ownership passes back to you. Our guide to how logbook loans work covers each stage of the process.
Comparing the Two Side by Side
- Use of the vehicle: pawn removes it for the full term; a logbook loan lets you keep using it.
- Repayment: pawn arrangements are often repaid in one go at the end, though terms vary; V5 Solutions loans are repaid in weekly or monthly instalments over 18 to 60 months.
- Assessment: both consider the vehicle's value. We also assess affordability, reviewing bank statements and speaking to you by phone, and bad credit is considered.
- If you fall behind: under either option, you could lose the vehicle.
Scenario One: Priya Needs Her Car for Work
Priya is a care worker who visits clients across a wide area. She needs £2,500 to replace a broken boiler. Pawning her car would raise the money, but she would then have no way of getting to her appointments, which could put her income at risk.
For someone in Priya's position, losing the car is not realistic. A secured loan where she keeps driving would at least let her carry on working, provided the repayments fit comfortably into her budget alongside her other bills. It would also be worth her checking whether her landlord, energy supplier or a local grant scheme could help first.
Scenario Two: Dan Has a Car He Rarely Uses
Dan works from home and has a weekend car he barely drives. He needs a smaller sum for a few months. Handing the car over temporarily causes him little disruption, so pawn might be workable, as long as he understands the full cost, any additional charges and what happens if he cannot repay on time.
Dan might also consider selling a car he hardly uses, which would raise money without creating any debt.
Important Points Before You Borrow Against Any Vehicle
- Compare the total amount repayable, not just the regular payment.
- Confirm the vehicle is registered to you and has no outstanding finance, as lenders will check.
- Think about how you would cope if your income dropped during the loan.
- Look at alternatives, including credit unions and payment plans with the people you owe.
Logbook loans are a costly form of borrowing, and both options put your vehicle at risk. This article is general information, not financial advice. If you are using credit to keep up with other debts, free advice from MoneyHelper or National Debtline is a sensible first step. For a clear picture of what is and is not true about this type of loan, see our article on common logbook loan myths. Our logbook loans page also shows a representative example.
Your car may be repossessed if you do not keep up repayments on a loan secured against it.
