Five Questions On: LogBook Loans

I've heard of these. They're loans against my car, aren't they?

Yes. Logbook loan companies allow borrowers to secure a loan against their car. That sounds fine, but firms have been accused of encouraging people to take out the loans without explaining the full risks.

What are the risks?

That you could have your car taken away, even if you owe just a fraction of its worth. Critics say the loans are too easy to take out – applications can be made online and cash transferred within hours. But interest rates are around the 400 per cent APR mark and if a borrower defaults, the firms are apparently quick to snatch your car. Citizens Advice has warned that borrowers using these loans are at risk of aggressive practices and absurd charges. There have been complaints about lenders issuing death threats.

Is it something to avoid then?

it certainly is, even if you're desperate. But the massive rise in logbook loans – it's estimated that 60,000 could be taken out this year, up 61 per cent on 2011 – could also lead to problems for anyone buying a second-hand car.

How so?

Under current law, motorists can have their car taken away if it has a logbook loan on it – even if they didn't take out the loan. Some people have been known to sell their car without informing the buyer that there's a loan on it, leaving them to face the aggressive collection practices of some firms. Citizens Advice found that one in five people who reported a problem with logbook loans had suffered a repossession despite not being the original borrower.

So what should be done?

We need a change in the law. The chief executive of Citizens Advice, Gillian Guy, said: "Rules that allow lenders to take cars without warning, and from people who haven't even taken out the loan, should be confined to the history books."