The Citizens Advice Bureau (CAB) is urging consumers to make sure that any used vehicle they buy is free from outstanding finance, to avoid being held liable for debts owed to a loan company, as with so-called ‘logbook loans’.
In the case of logbook loans, the money borrowed is secured against a vehicle. If, in future, the car is sold on, the lender can still reclaim the debt from the new owner because the loan remains associated with the vehicle itself, rather than with the original borrower.
A Freedom of Information request from the CAB to HM Courts and Tribunals Service in 2011 discovered that 36,829 logbook loans had been issued. This figure jumped to 49,475 in 2013 and is expect to climb further this year, reports the BBC.
Over time because the interest is so high on these loans they really add up. One of the worries about these forms of credit is you get locked into a cycle.
Apart from holding future owners liable for the outstanding balance of a loan, logbook loans also come with very high interest rates – which are typically around 400 per cent.
However, car buyers can protect themselves by purchasing a full car history and finance check. While not all of these will check for every type of outstanding finance, a full check from a company such as HPI should provide adequate protection – and a £30,000 guarantee – so potential buyers can be sure that the sale is legitimate. Not all ‘finance checks’ are as thorough, though, so buyers should make sure they know what's included in the history or finance check they choose.
Head of consumer research and campaigns for the CAB, James Plunkett, told the BBC: "Over time because the interest is so high on these loans they really add up. One of the worries about these forms of credit is you get locked into a cycle."
The law commission is currently reviewing “bills of sale” – including logbook loans – to investigate how to provide better protection for consumers, with a report due to be published in 2016.