Key features of logbook loans and the market

Find out about the features and trends in the logbook loans market.

Logbook loans range in size from about £500 to £50,000 (Money Advice Service),  with an average amount of about £1000 (BIS (2011)). 

Amounts that can be borrowed depend on the value of the vehicle: our research with firms indicates loan-to-value (LTV) ranges from 60% to 100%.  The time taken to approve a loan varies from a few hours to a few days.

Loans usually last between 6 to 18 months. Interest varies, but APR is typically around 400% or higher (Money Advice Service). 

Consumers can incur additional fees and charges, such as default charges and fees for letters and/or telephone calls. Consumers can also be charged other costs, for example, if their vehicle is repossessed.  

Loan repayments are on a weekly or monthly basis.

How big is the market?  

The logbook loan market is a small, niche market, aimed at consumers with a poor credit history, who own a vehicle and who need a relatively large amount of credit quickly. There is limited evidence on market size.

Logbook loan market size estimates (2006 - 2010)

Year

Registered Bills of Sale

2006

27,891

2007

33,266

2008

38,462

2009

38,153

2010

38,753 (estimate based on 19,356 loans from January to June)

Source: BIS (January 2011), Data based on High-Court registration figures

Logbook loan market size estimates (2011-14)

Year

Registered Bills of Sale

2011

36,829

2012

41,123

2013

49,745

2014

59,286 (predicted from January and February

Source: Citizens Advice (CAB), Data based on High-Court registration figures

 

Department of Business and Skills - BIS (2011) - estimates an average loan size of £1,000 for 2010, while Citizens Advice (CAB) cite an average loan size, for loans currently reported to them, of £1286. 

Taking the latter estimate as the current average loan size, we estimate (from the 2014 CAB estimate of the number of loans that will be registered) that total logbook lending in 2014 will be between £59m and £76m. 

What are the trends?

Except for 2009 and 2011, there has been year-on-year growth in the number of logbook loans registered from 2006 to 2014.

Given this recent trend, and the fact that economic conditions are improving while households remain squeezed, we expect the growth in the number of logbook loans sold to continue.   

How do providers earn money from logbook loans?

Our research with some logbook lenders  identified two high-level business models: emerging/online lenders; and more traditional in-branch lenders, including those that sell logbook loans through affiliates. 

For both types, borrowers have to go to the office of the firm for the lender to appraise the car and for borrowers to sign the agreement. 

We also found:

  • Emerging/online lenders tend to lend loans with higher LTVs (up to 100% for more credit worthy borrowers) and appear to lend to borrowers with slightly stronger credit history than the in-branch lenders.
  • For emerging/online lenders the value of the car also appears to be the key consideration when granting a loan. Credit checks appear frequently not to be carried out or are inadequate.  
  • In-branch lenders reported that they see employment status as more important in deciding whether to grant a loan.  
  • Lenders claimed they follow the trade-body (CCTA) code of conduct. In-branch lenders reported, however, that there were numerous other lenders who were less scrupulous.
  • Lenders argued that low complaint levels, low repossession rate and high-levels of repeat custom are evidence that their affordability assessments were appropriate.
  • Most revenue derived from interest payments rather than fees.
  • Lenders see repossession as a last resort. Where repossession occurs, the costs of repossession and sale are passed to the consumer. Outstanding costs following the sale of the vehicle are also charged.

Market share appears to be held largely by a few firms that are active on a national scale. There are also a large number of smaller, local lenders.