Citizen’s Advice highlights log book loan peril

Did you know that a lender can seize your car if the previous owner has borrowed money against the vehicle and failed to pay off the debt? It sounds improbable, but it’s a real and growing threat to innocent motorists as more people take out logbook loans.
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Repossession problem

The number of logbook loans is expected to soar to 60,000 this year, a jump of 61% on the figure for 2011, according to Citizens Advice. The charity is also concerned about the number of unwitting motorists whose cars are repossessed. It found that one in five people who reported a problem about logbook loans had their car taken away, even though they were not the original borrower.

Inherited debt

One man, for example, spent £1,100 on a second-hand car only to receive a letter from a logbook loans company demanding payment of £637. The driver contacted the loan firm with the seller’s address, but someone still turned up to take the car away. The man then borrowed money to pay off the previous owner’s debt.

Legal situation

Many people have never heard of logbook loans – two in five drivers, according to research by Citizens Advice. So it’s perhaps no surprise that nearly half (44%) have no idea that a log book lender can take their car away, even if they are not the original borrower. Citizens Advice reckons it’s tantamount to legalised theft and wants the law changed so that logbook lenders cannot repossess someone’s car if they are not the original borrower.

‘Legalised theft’

Gillian Guy, the charity’s chief executive, says: “It is basically legalised theft that logbook lenders can take cars from people who are not the borrower. Innocent drivers should not have to bear the burden of someone else’s debt.” Drivers can pay for a loan search before they buy a car, but most don’t bother - 63% of used car buyers do not check for outstanding loans. Also, some types of loans don’t show up on the searches.

Secured loan

So what is a logbook loan? Basically, it’s a loan secured against your car. You hand over the logbook and the lender hands over the cash. It’s a quick way to get hold of some money. Plus, there are no credit checks. You sign a form called a bill of sale, which grants the lender temporary ownership of the car. But you can still use the vehicle as long as you keep up with the loan repayments. If not, the lender can seize the car – even if it has since been sold.

Grand designs

The average loan amount is £1,000, but the cost is high, with a typical APR of 400%. In other words, if you took out a loan of £1,500 and paid £55 a week for the standard term of 78 weeks, the total cost would be £4250. Logbook loans have already come under fire from the Financial Conduct Authority, which earlier this month criticised lenders for poor standards.

Full implications

Citizens Advice is also calling for better protections to make lenders treat their customers fairly. Guy says: “Logbook loans do not just present a problem for car buyers – borrowers themselves are being exploited. “The industry is rife with irresponsible lending and some people are signing up to logbook loans not knowing the full implications because the outdated language isn’t clear.”

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