If you own your car outright and need to raise some money, you might have wondered whether you can pawn it, the same way you might pawn a watch or a piece of jewellery. The short answer is yes, some firms do offer car pawn. But it is not the only way to borrow against a vehicle, and the difference matters a lot if you rely on your car day to day.
Here we explain how car pawn works, how it compares with a logbook loan, and what to weigh up before choosing either.
How does car pawn work?
With car pawn, you hand your vehicle over to the lender as security for a loan. The lender keeps the car, and usually the keys and documents, in storage until you have paid back what you owe plus interest. Once the loan is repaid, you collect your car.
If you cannot repay, the lender can sell the vehicle to recover the money. Depending on the agreement, any money left over after the debt and costs are covered may be returned to you.
The key point is that for the whole length of the loan, you cannot use the car.
How is a logbook loan different?
A logbook loan is also secured on your vehicle, but you keep it. At Logbook Money, the loan is secured with a Bill of Sale, which transfers legal ownership to us as security while you carry on driving. In Scotland, the loan is set up as a Hire Purchase agreement signed online instead.
A few things that set it apart from pawn:
- You keep your keys and drive as normal for the whole loan.
- We never take your V5C logbook or your spare key.
- You repay weekly or monthly over 18 to 60 months, by recurring debit card payment.
- Once the loan is repaid, ownership comes back to you.
You can find out more on our page about keeping your car while you borrow, or read how logbook loans work step by step.
The pros and cons of car pawn
Possible advantages:
- It might suit you if the vehicle is one you do not need right now, such as a second car or something kept off the road.
- The arrangement is usually simple to understand: the car is the security, and you get it back when you repay.
Possible disadvantages:
- You lose the use of the car, which can be a big problem if you need it for work, school runs or caring responsibilities.
- Getting to work or appointments another way can add costs you had not budgeted for.
- If you cannot repay, you could lose the vehicle.
- Check whether there are any storage or other charges on top of the interest.
The pros and cons of a logbook loan
Possible advantages:
- You keep driving, so your daily routine does not change.
- The decision is based on the vehicle's value and what you can afford, not just your credit score, so bad credit is considered.
- Interest is fixed when you sign, and you can settle early at any time with a rebate on interest.
- Money usually reaches your bank within 24 working hours of applying.
Possible disadvantages:
- It is a costly way to borrow compared with mainstream credit.
- Your vehicle can be repossessed if you do not keep up repayments.
- You need to own the vehicle, with no outstanding finance on it.
There are a lot of misunderstandings about this kind of borrowing, so our article on logbook loan myths is worth a read too.
Questions to ask yourself first
Before you borrow against your car in any form, think about whether you really need to. Could you speak to the people you owe about a payment plan, ask your employer about an advance, or get help from a credit union? Do you need the car every day? And can you afford the repayments every week or month for the full term, even if something else goes wrong?
If you are borrowing because of existing debts, talk to a free service like StepChange or Citizens Advice before taking on more credit. This article is general information, not financial advice. Whatever you decide, compare the total amount repayable and check the representative example on our loan calculator.
Your car may be repossessed if you do not keep up repayments on a loan secured against it.
