Deciding whether to borrow against your vehicle is a bigger decision than many people realise when they first start looking. The application can be quick, but the agreement may last several years and the vehicle is the security throughout.
V5 Solutions has put together this checklist to help you decide. It sorts the main considerations into signs that a logbook loan may be suitable, signs that it is worth pausing, and signs that it is probably not right for you. It then explains how to test your budget before you apply.
Signs a Logbook Loan May Be Suitable
- You own the vehicle outright, with no finance outstanding, and it is registered in your name or you can show that it is yours.
- You need a defined amount, between £1,000 and £50,000, for a specific purpose.
- Your income is regular and leaves a comfortable margin once essential bills are paid.
- Mainstream lenders have declined you because of past credit problems, but your finances are now stable.
- You have compared other options and none is available or suitable.
Notice that speed is not on this list. Funds from V5 Solutions usually arrive within 24 working hours of applying, which helps in a genuine emergency, but needing cash quickly is not on its own a reason to choose secured borrowing. The deciding factors are whether you can afford the repayments and whether a less costly option exists.
Signs It Is Worth Pausing to Think Again
- You are not sure how much you need. Get written quotes for the cost first.
- Your income is irregular or about to change, for example because a contract is ending or you are about to go on parental leave.
- You have no savings at all, so any other unexpected cost could leave you unable to pay.
- You are tempted to take the maximum available rather than the amount you actually need.
None of these rules a loan out, but each deserves careful thought before you go ahead.
Signs It Is Probably Not the Right Choice
- You are already behind on priority bills such as rent, mortgage, council tax or energy.
- You would use the loan to make repayments on other debts you are struggling with.
- You would lose your job or be unable to care for someone if the vehicle were repossessed, and the repayments are not comfortably affordable.
- The purpose could wait while you save.
If any of these apply, speak to a debt adviser before taking on new credit. National Debtline, StepChange and Citizens Advice are free and confidential.
How to Stress-Test Your Budget
V5 Solutions checks affordability by reviewing bank statements and speaking to every applicant. Your own check matters just as much, because only you know what is coming up. Try this:
- Calculate your monthly surplus: net income minus fixed costs, flexible spending and existing debt repayments. Our guide to the key figures in your budget explains how.
- Use our calculator to see the repayment for the amount and term you are considering, and check the representative example.
- Imagine your income falling by a tenth and see whether the repayment still fits.
- Add an unexpected cost, such as a car repair, in the same month. Could you still pay?
If the repayment only fits in the best-case scenario, consider a smaller amount, a different term or waiting. A longer term lowers each payment but increases the total interest paid.
Understanding What You Are Agreeing To
Before you sign, be sure you understand the essentials. With V5 Solutions, a Bill of Sale transfers legal ownership of the vehicle to us as security while you keep using it. In Scotland, and for some other UK loans, a Hire Purchase agreement signed online is used instead. Interest is fixed at signing, early repayment is possible whenever you choose with interest rebated, and you have 14 days to withdraw after the agreement is made.
Our explanation of logbook loans and the FAQ cover these points in more depth. Borrowing against a vehicle is a costly form of credit, so take your time over the decision.
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.
