Costs on a loan are rarely hidden in the literal sense. Regulated lenders have to disclose them. The trouble is that the information is spread across several documents, and it is easy to skim past the details when you are keen to get the money.
This V5 Solutions guide follows the paperwork in the order you will receive it, explaining where each cost appears and what to check at every stage.
Stage One: Your Quote
Your first figures usually come from a quote. With V5 Solutions, a soft search gives you a personalised quote that does not affect your credit score.
At this stage, look for three numbers:
- The amount of credit. This is the money you will actually receive.
- The term and payment amount. How often you pay, how much, and for how many weeks or months.
- The total amount repayable. Everything you will pay back if the loan runs to the end.
Subtract the first figure from the third and you have the full cost of borrowing. Compare that, not the instalment, when weighing up lenders. Our logbook loans page shows a representative example.
Stage Two: The SECCI and Adequate Explanations
Before any agreement is signed, UK lenders must provide pre-contract information in a set format, known as the SECCI (Standard European Consumer Credit Information). It covers the type of credit, the total amount, the duration, the borrowing rate and APR, the total repayable, any compulsory charges and the consequences of missing payments.
Lenders must also give you an adequate explanation of the key features, so you understand what you are agreeing to. Use this moment to ask questions such as:
- Is any fee deducted from the money I receive?
- Is the interest rate fixed or variable?
- Which charges could be added later, and in what situations?
With V5 Solutions, the interest rate is locked in at signing, which keeps every payment the same.
Stage Three: The Credit Agreement and Bill of Sale
The credit agreement is the binding contract. Check that the figures match the SECCI exactly. Look for the sections on:
- Default charges. What may be added if a payment is late or missed. FCA rules say these must not be more than is needed to cover the lender's reasonable costs.
- Early settlement. Your statutory right to repay early and how the interest rebate is calculated.
- Your right to withdraw. Normally 14 days after the agreement is made, on condition that you repay the credit and interest for the time you held it.
In England and Wales, you will also sign a Bill of Sale, which secures the loan on your vehicle. For most loans, an agent visits to witness this. In Scotland, and for some other UK loans, a Hire Purchase agreement is signed online instead. If anything in either document differs from what you were told, do not sign until it has been put right.
Stage Four: During the Loan
Most extra costs arise after signing, and nearly all of them come from missed payments. Late payments can lead to charges, further interest and a negative mark on your credit file. If you fall seriously behind, the lender must send formal notices before taking further action, and your vehicle could ultimately be repossessed.
The best protection is to tell the lender early if money is tight. You can also get free, confidential help from MoneyHelper or Citizens Advice.
Stage Five: Settling Early
If your circumstances improve, settling early can reduce the overall cost. With V5 Solutions you can do this at any time and receive a rebate on interest. Request a settlement figure, which will show exactly what is needed to clear the balance. When it is paid, ownership of the vehicle returns to you.
Understanding the paperwork is only part of the decision. A logbook loan is an expensive form of credit secured on your vehicle, so read our article on how borrowing costs compare and look at how logbook loans work before applying.
This article is general information, not financial advice. For free, impartial help with your own situation, visit MoneyHelper.
Your car may be repossessed if you do not keep up repayments on a loan secured against it.
