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Logbook Loans Causing Used Car Debt Crisis

By raccars Published

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Unwitting used car buyers are inheriting debts from previous owners, according to consumer watchdog, Citizens Advice, leaving them at risk of having their vehicle seized as lenders try to reclaim their funds. The new owners are purchasing the cars in good faith and unaware that their vehicles come with debts for which they are now liable.

Citizens Advice is worried that the practice, which it describes as 'legalised theft,' is on the increase thanks to the rise in so called 'logbook loans,' where credit companies lend money secured upon the borrower's car. The problem arises when the owner sells the vehicle on without repaying the loan, which makes the new owner of the car responsible for the debt upon it. If they don't pay, legally the lender is entitled to seize the car.

The average debt is about £1,000 but can go up to £50,000 on high end vehicles, and consumers have reported heavy handed tactics on the part of the credit firms as they go about reclaiming the loan - even death threats in some cases.

Of the more than 250 consumers reporting a problem with buying a car which turned out to have a debt secured upon it, 20% have already lost their cars to repossession, even though they weren't the ones who borrowed upon it. The crisis looks set to deepen as the trend for logbook loans grows, already up 61% since 2011. Sixty thousand car owners are expected to take out a logbook loan this year.

Citizens Advice questioned 874 used car buyers, revealing that two out of three had not checked to see if there were any loans attached to the vehicle. Nearly half of those surveyed were unaware of the existence of logbook loans. The charity is calling for the law to be changed to protect second hand car buyers. The consumer credit industry has recently come under regulation by the Financial Conduct Authority, which is warning logbook loans firms that they must improve standards or face being put out of business.

The firms are expected to start carrying out checks on lenders regarding affordability, while some have also come under fire for encouraging applicants to give misleading details about their income.

Car buyers are being advised to credit check any potential purchases for outstanding loans before handing over any money. Citizens Advice is hoping that a change in the law would prevent logbook loans companies from seizing cars from new owners who did not originally borrow the money.

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