UK consumers are using logbook loans to raise money when they are desperate for cash. This is a more common situation now than ever before owing to the poor state of the country’s economy. As a result, people are using their cars as collateral to secure funding for mortgage payments or to cover routine bills.
A logbook loan gives the lender ownership of the borrower’s car until such time as he has fully repaid the loan. Unfortunately debt support agencies are hearing logbook loans complaints with growing frequency as consumer watchdogs are particularly concerned about the rights of individuals who purchase second hand cars which are still subject to loan arrangements.
If a borrower does not pay back his loan in a timely fashion, the lender can repossess his car. As tough as this is to take, this is the condition which a borrower knowingly agrees to. Before paying off their loans, however, some consumers are selling their cars. They are not legally permitted to do this because, even though they drive their cars, ownership is in the hands of the lender until their debt is satisfied. Without realizing it, second hand car buyers are actually buying a car from someone that doesn’t own and the sale is therefore ineffective.
The BBC writes that this type of loan is covered by a Victorian law which does not protect the borrower or a ‘third party,’ such as the buyer of a second hand car. Consumers have initiated legal action to keep their vehicles even though they did nothing wrong.
Parkers.co.uk advises consumers to approach second hand cars with caution and always perform a history check. Not all vendors will reveal that they owe money on a vehicle. It is always best to perform the check, and if this information has not been discovered by the body doing the checking, you are insured against the possible loss of your car.
While various financial bodies call for a ban on logbook loans, according to the BBC this is not going to happen. The rules might be rewritten, but right now it is up to car buyers to beware.