Logbook loans – reforming unfair, archaic law

Coin rolls and a red car, isolated on white background.

Every year thousands of borrowers and unwitting buyers of second-hand vehicles are falling victim to unfair logbook loans because the law does not protect them.

Logbook loans are a way for borrowers to use their car or van as security for a loan. The lender takes on ownership of the vehicle but the borrower can carry on using it. But borrowers who miss payments can swiftly face repossession of their vehicle as well as a rapidly increasing outstanding loan and high charges – even if they have already paid off most of their loan. And anyone buying a second-hand vehicle that is still subject to a logbook loan can unexpectedly find themselves losing the vehicle or having to pay off the loan.

In a report published today, we are recommending changes to the law that would make this form of lending fairer for borrowers and offer greater protection to people buying second-hand vehicles that are still subject to these loans.

  • Borrowers would have more time to pay – a borrower who is temporarily unable to pay but has already repaid more than one third of the loan could stop lenders repossessing the vehicle without a court order.
  • Borrowers could end the agreement – a borrower who cannot make any more payments would have the right to hand the car back to the lender and not be liable for the remainder of the loan.
  • Buyers of second-hand vehicles would be protected – where a private individual buys a vehicle in good faith and without knowing that it is subject to a logbook loan, they would become the owner of the vehicle and would not be liable for the loan.

Stephen Lewis, Law Commissioner for Commercial and Common Law, said:

“Borrowers are increasingly turning to logbook loans to raise cash, but many who default rapidly find themselves out of pocket and their vehicle repossessed. People buying second-hand vehicles understandably expect the law to protect them but it is out of date and out of step with other consumer legislation.

“It is high time the law was reformed to bring protections to both logbook loan borrowers and the unwitting purchasers who, in all good faith, buy second-hand vehicles that are still subject to these widely used and unfair loans.”