A method for obtaining a loan that has less general awareness than other types of finance are what are known as Bills of Sale. This is a bill that in the UK dates from 1878 and has grown in popularity in recent years.
What it means is that anyone can use something they own as security for a loan. In essence they take out a loan against a good that they own, which in theory can be anything. But the most common use of the bill today are in the types of loans defined as logbook loans.
Logbook loans are where an individual uses their vehicle, usually a car, as security for the loan. They can borrow around 70% of the value of the vehicle and pay the amount back in instalments. The company offering the loan is generally more lenient with borrowers about having a good credit history, even so far as the borrowers can have County Court Judgements against them and the lender will still offer a loan. This is because the loan is secured against the vehicle and if the customer doesn’t pay the loan back, the lender can repossess the vehicle and claim back some of the money they lent.
Other loan products don’t have this kind of security, for example a credit card provider has to be more careful with who they lend to because they have no security on the loan. This is why a credit card company will turn down a potential borrower because they have a poor credit score.
Bills of sale make it easy to repossess a vehicle
The issue here for logbook loan borrowers is that a Bill of Sale effectively gives ownership of the vehicle to the loan company. That means that should the company decide the repossess the vehicle, they can at any time. In normal circumstances such as in a hire purchase agreement, the company would have to obtain a court order so they could repossess the car.
When someone buys a car with a logbook loan against it
Another potentially more problematic issue is that often individuals who have borrowed against their car using logbook loans then sell the vehicle on to someone else. That buyer, if they don’t carry out the correct checks against the vehicle before they buy it is then liable to pay the logbook loan. Many innocent purchasers have found their new car being repossessed because they had a logbook loan against it they knew nothing about.
The Law commission is looking into the situation
The Law Commission has reviewed Bills of Sale and offered recommendations to improve the situation faced by both borrowers and lenders. They recommend that borrowers vehicles are not repossessed too quickly by lenders and that the amount of bureaucracy lenders face when dealing with Bills of Sale will be reduced. They have worked with both parties, lenders and borrowers to try and come up with recommendations that suit both and do not hinder a service that is obviously needed by the numbers who are taking up the loans.
They have put it forward to the government and hope to be able to draft a bill which could be introduced to Parliament. It may not be a quick process but it is some way forward when it comes to updating a Bill that has been around for so long.