Logbook Loans And Debt Problems In Scotland
Updated: 7th October 2016
The Problem With Logbook Loans
With interest rates of up to 500%, logbook loans are a very expensive form of credit. Because they’re secured against a vehicle, they can often be easily obtained without a normal credit check. The amounts lent can range from £500 to £50,000, depending on the value of your vehicle. Most people can get a logbook loan so long as their vehicle does not have existing finance registered against it.
If someone borrowed £1,500 via a logbook loan they could (in certain fairly typical circumstances) find themselves paying back £4388 over eighteen months with monthly repayments of around £244.
If you get into financial difficulty and default on the repayments, you’ll quickly be at serious risk of your vehicle being repossessed. You’ll also be at risk of hefty fees being added to your account for collections activity (such as phone calls, letters or agents calling at your house). The lender is likely to auction off your vehicle, which might create an additional shortfall debt.
With a deteriorating credit record, or managing many other debts, it’s natural that some people are tempted towards this type of finance. This can be a short-term mistake with frightening long-term consequences.
I’m In Trouble – What Can I Do?
If you’re in arrears with a logbook loan (or at risk of arrears) a sensible initial step might be to contact the lender. Usually they’d rather work with you than expensively repossess a vehicle. You might be able to skip a payment to deal with a financial emergency, or to reduce your payment temporarily if that’s essential.
If it’s clear that you will not be able manage the payments in the long-term a different approach might be required. One option might be to agree that the vehicle will be sold, with the balance of the debt owed being returned to the logbook lender. In some circumstances this may result in sufficient money being left over to purchase a replacement vehicle.
You may also wish to consider whether it’s essential to keep a vehicle. Would you be able to manage, for a period of time at least, without one?
Another option will be to speak with a debt adviser. They may be able to assist you to restructure your finances in a way that makes continuing your logbook loan payments viable.
How Debt Advice Can Help
Debt advisers split debts into “priority” and “non-priority” sections.
Priority debts are classified as being those where non-payment would result in the loss of essential goods or services. Your mortgage or rent, utility bills, and council tax are examples. Secured car finance is treated the same way if you need the vehicle.
Non-priority debts are those which would not result in the loss of essential goods or services. This might include credit cards, store cards, overdrafts, payday loans, or catalogues.
A debt adviser will work with you to find a way to keep full repayments in place for your priority debts. They’ll then move onto your non-priority debts afterwards, and suggest different ways that you could deal with them.
If you have several debt commitments, and they’re collectively making it hard to keep a logbook loan payment up to date, a debt adviser may be able to help you bring it all under control.
Sometimes this is as simple as better budgeting. Other times it might involve entering into a debt solution to deal with your non-priority debts. In Scotland the formal debt solutions on offer include Scottish trust deeds, the debt arrangement scheme, and bankruptcy. A less formal option that might sometimes be suitable is a debt management plan.
A Technical Footnote
Logbook loans work differently in Scotland to elsewhere in the UK. In England, Wales and Northern Ireland you’ll have to sign a “bill of sale”. If this document is registered with the court, the lender now effectively owns the vehicle until you’ve fully paid off the debt.
Bills of sale aren’t used as security in Scotland. A different type of credit agreement will have been used. This may be advantageous to you as, if your credit agreement is either a “hire purchase” or a “conditional sale” agreement, you’ll have extra protection (under the Consumer Credit Act).
Our advice team can help you to identify ways to tackle any debt problem. For help, please get in touch by calling us or submitting a contact form.
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