Logbook loan or unsecured personal loan

A logbook loan and an unsecured personal loan both give you cash to spend as you choose, but they work in opposite ways when it comes to your car. With a logbook loan, you hand ownership of your vehicle to the finance company until you make the last payment¹. The lender takes ownership of the car from the start of the loan and gives it back only when you have settled the agreement in full². A personal loan, by contrast, is not secured on anything: a bank, building society or finance company can give you one whether or not you are already a customer³, and if you use it to buy a car, the loan provider cannot take the car back if you miss payments¹.

That single difference drives everything else on this page: the cost, who qualifies, what you sign, and what happens if things go wrong. Logbook loans are an expensive way to borrow money¹, with APRs that are very high for the loan repayments, sometimes over 200 per cent⁴. Personal loans are generally cheaper, and they leave you free to sell the car at any time¹. StepChange, the debt charity, recommends avoiding logbook loans altogether⁵.

A logbook loan hands your car to the lender; a personal loan does not

A logbook loan is a loan secured on your vehicle, normally a car: you borrow money and the car is the security for what you have borrowed². The mechanism is a document called a bill of sale, which transfers the legal ownership of your vehicle to the lender until you have paid the loan in full². You can still drive the vehicle while you repay the loan, and you only become its legal owner again once the agreement is settled⁴. Logbook loans can be used to buy a car, but they are more often used to borrow cash secured against a car you already own¹.

A personal loan works the other way round. It is unsecured, which means it is not tied to any possession. If you take out a personal loan to buy a car, the monthly payments go to the bank or lender rather than a car finance company, and your car is not at risk from missed payments¹. You can sell the car at any time, because it is yours¹. The trade-off is that the lender has nothing to seize if you stop paying, so it relies on your credit history and income when deciding whether to lend, and on court-based debt recovery if things go wrong.

For a fuller comparison of borrowing secured against something you own versus borrowing with no security at all, see secured or unsecured borrowing compared, and for the logbook product in detail, see logbook loans.

Cost: logbook loans can charge over 200 per cent interest

Logbook loans are an expensive way to borrow money¹. Official guidance for Northern Ireland is blunt about the price: you get cash quickly, but the APR is very high for the loan repayments, sometimes over 200 per cent⁴. Experian, the credit reference agency, goes further and describes logbook loans as often even more costly than payday loans⁷. StepChange warns that with a logbook loan you often pay back more than double what you borrow⁵.

Personal loans are typically far cheaper. As an illustration from independent guidance on raising money: borrowing £20,000 on a personal loan at 7 per cent and repaying it over five years would cost £3,640 in interest⁸. A smaller example from guidance on paying for home improvements found that spreading £5,000 over three years with a loan would accumulate £532 in interest at the lowest loan rate available⁹. These are examples rather than promises: the rate you are offered depends on your circumstances, and having a bad credit rating will make it more expensive and harder to borrow money¹⁰.

If cost is the main obstacle, there are cheaper routes for smaller sums. Credit unions offer competitive rates of interest on personal loans of up to about £3,000¹¹, and free debt advice may reveal options that do not involve borrowing at all. See credit union loans and cheaper alternatives to a payday loan.

Who can get each type of loan

Logbook loans are aimed at people who may struggle to borrow elsewhere. Some lenders may give you a logbook loan if you have bad credit, but that is up to them⁵. Many logbook lenders do not do a credit check at all⁷, and lenders offering secured loans generally may lend to people with a bad credit history who would not get an unsecured personal loan¹². The amount you can borrow depends on the value of your vehicle², and some logbook lenders may only lend up to half of the car's value⁷. Lenders will ask for proof of income such as payslips or bank statements⁷.

Personal loans are open to a wider range of people but are priced by risk. Building societies and banks may be able to offer you a personal loan, and it is worth shopping around for the best terms from a reputable lender¹³. If you have a poor credit rating, you may only be able to get a loan at a high interest rate, or one secured against your home¹³, and a low credit score can mean higher rates or being offered higher-risk secured loans instead¹⁴. Official statistics from the Financial Conduct Authority show how common borrowing for debt is: of those taking personal loans, just over one in four used one for debt consolidation or to pay off other debt¹⁵.

Neither type of loan is guaranteed. Lenders must check that the borrowing is affordable, and you can read what that involves in loan affordability checks and getting a loan with a poor credit history.

What you sign and the documents you need for a logbook loan

When you take out a logbook loan, you usually sign two agreements: a personal loan agreement and a bill of sale agreement². The bill of sale is the document that transfers legal ownership of your vehicle to the creditor⁵. The loan itself is regulated by the Consumer Credit Act⁵.

To get the loan, you will normally need to show your vehicle logbook to the lender to prove you are the registered keeper, and to show you are insured to drive the vehicle². The lender will ask you to hand over your logbook, also called the vehicle registration certificate⁷. They may also ask for your MOT and car insurance documents, photo ID and proof of address⁷. Repayment frequency depends on the terms of your agreement, and some lenders ask for weekly payments⁷.

A personal loan involves one credit agreement and no bill of sale. Because nothing is secured, the paperwork is about proving identity, income and creditworthiness rather than handing over ownership of a possession. For the general process, see how to apply for a loan.

You cannot sell the car or end a logbook loan early

Ownership has practical consequences. Because the lender owns the car until the loan is paid, you cannot legally sell it during the loan⁵, and you cannot end a logbook loan early¹. If you repay early, you may face extra charges if you repay more than £8,000 in any 12-month period⁷.

With a personal loan used to buy a car, the position is reversed. You can sell the car at any time¹, and the loan simply continues to be repaid. You have no right to hand the car back to end the agreement early, because the loan was never tied to the car in the first place¹. If you want to clear a personal loan ahead of schedule, that is a question of settling the loan, covered in paying off a loan early and settlement figures.

One further consequence of the ownership transfer: bailiffs cannot clamp or remove a vehicle used in a logbook loan where the last payment has not been made, because the vehicle belongs to the lender¹⁶. That protects the car from other creditors, but it does not protect you from the logbook lender itself.

If you miss payments: repossession without a court order

This is where the two loans diverge most sharply. If you miss logbook loan payments and build up arrears, the lender can take your car, and they do not need a court order to do this¹. The process is that the lender issues a default notice giving you 14 days to bring the account up to date⁵. As long as the bill of sale was registered with the High Court, the lender does not have to go to court to take away your vehicle, but must give you those 14 days to catch up⁷. They must also wait at least five days after the account defaults before acting⁵. If the bill of sale is not registered, the lender must get a court order to repossess your vehicle⁴.

With a personal loan, missing payments does not put your car at risk¹. The lender cannot simply take a possession: it would need to use the courts, and enforcement against your goods would come later, through the standard debt process. Not paying any debt has serious consequences, and not paying hire purchase or logbook loan debts could lead to you losing your car or other essential goods⁵.

If the car is taken and sold, the debt may not end there. If the sale price does not cover the total you owe, you have to pay the shortfall⁵, and extra charges will usually be added to your debt to cover the costs of removal⁵. If the car sells for more than you owe, the difference must be paid back to you⁵. The same shortfall rule applies to other car finance: if the car sells for less than what you owe, you are liable for that shortfall¹⁷.

For more detail, see can a logbook lender take your car and what to do if you can't repay a loan.

Where logbook loans do not apply: Scotland

Logbook loans are not common in Scotland, because bills of sale are not valid under Scottish law⁵. The product exists in England, Wales and Northern Ireland⁵. If you are in Scotland and need to borrow, the same alternatives apply: personal loans, credit unions and other lenders operate across Great Britain, and Scottish debt solutions such as the Debt Arrangement Scheme are covered in loans and car finance in Scotland.

In Northern Ireland, logbook loans are valid and the standard rules on bills of sale apply, including the requirement for the lender to obtain a court order if the bill of sale is not registered⁴. Advice NI publishes guidance on car finance options for Northern Ireland borrowers¹⁷, and see loans and car finance in Northern Ireland.

Getting help with logbook loan debt

Logbook loan debt is treated as a priority in advice terms, because the consequence of non-payment is losing the car, which for many people is essential for work. Free, impartial help is available: StepChange, National Debtline and Citizens Advice all publish guidance on logbook loans and will advise on them without charge¹. National Debtline's guide to bills of sale explains the repossession rules and your options¹⁹, and its guide to car repossession sets out what you can do about it²⁰.

If you are struggling, the practical steps are:

1. Get free debt advice before you miss a payment, not after: options are widest early.
2. Check whether the bill of sale was registered, because an unregistered bill means the lender must go to court before taking the car⁴.
3. Ask the lender about a repayment plan, and keep copies of everything you send and receive.
4. If the lender repossesses unfairly or the loan was unaffordable when granted, complain to the lender and then to the Financial Ombudsman Service, which handles logbook loan complaints². See complaining about a lender and complaining about an unaffordable loan.

Two further points worth knowing. If you go bankrupt, the official receiver will check the logbook loan agreement to make sure it is valid; if it was not drawn up correctly, the logbook loan company will not have security over your vehicle²¹. And if you are considering borrowing more to clear existing debts, a consolidation loan does not reduce what you owe, and free advice first is usually the safer route: see consolidation loan or free debt advice and the wider guide in debt: a complete guide.