If you need money quickly and your credit history is not perfect, three options often come up: a payday loan, a car buy-back scheme or a logbook loan. They can look similar at first glance, but they work in very different ways, and the differences matter a great deal if things do not go to plan.
Here we explain each one in turn, then put them side by side so you can see which, if any, might suit you.
How payday loans work
A payday loan is a small, short-term unsecured loan, often for a few hundred pounds, usually paid back in a single sum when you are next paid, or in a few monthly instalments. Nothing is used as security, so your car and home are not directly at risk.
Payday loans are a type of high-cost short-term credit, and the FCA caps their cost. Interest and fees cannot be more than 0.8% of the amount borrowed per day, default fees are capped at £15, and the total cost can never be more than twice the amount borrowed. Even so, the cost over a month can be steep, and rolling one loan into another can quickly become a cycle that is hard to escape.
May suit: someone needing a small amount for a very short time, who is certain they can repay on the due date.
How car buy-back schemes work
With a car buy-back scheme, a company buys your vehicle from you for cash, usually well below its full value, with the option of buying it back later at a higher price. Ownership passes to the company when you sell. Depending on the scheme, the car may be taken away or you may pay to keep using it.
The details vary a lot between providers, so read the terms closely. Check whether you will still be able to drive the car, what the buy-back price will be and what happens if you cannot afford it by the deadline. Usually, you simply lose the car. Check too whether the firm is authorised by the FCA and what protections apply, using the FCA Register.
May suit: someone who is prepared to sell the car and treats the buy-back as a bonus rather than a plan.
How logbook loans work
A logbook loan is a loan secured against a vehicle you own outright. In England and Wales it is secured with a Bill of Sale, and in Scotland it is arranged as a Hire Purchase agreement. You keep the car and drive it as normal while you repay in instalments.
At Logbook Money, you can borrow from £1,000 to £50,000 over 18 to 60 months, with weekly or monthly repayments and interest fixed when you sign. We base our decision on your vehicle's value and your affordability, so bad credit is considered, and the money usually reaches your bank within 24 working hours of applying. You can settle early at any time with a rebate on interest. Find out more about how we let you keep driving your car.
May suit: someone who owns a vehicle with no outstanding finance, needs a larger sum and wants to spread the cost over a longer period.
Side by side
- Amount: payday loans are usually small; buy-back depends on the price offered for your car; logbook loans range from £1,000 to £50,000 with us.
- Term: payday loans run from weeks to a few months; buy-back periods vary; our logbook loans run for 18 to 60 months.
- Your car: not involved with a payday loan; sold with a buy-back scheme; kept and driven with a logbook loan.
- Main risk: payday loans can lead to repeated borrowing; buy-back can mean losing your car for good; with a logbook loan, your car can be repossessed if you do not keep up repayments.
All three are costly ways to borrow. Our page comparing logbook loans and payday loans goes into more detail, and our guide to avoiding hidden fees shows how to compare the total cost of any loan.
Consider the alternatives first
Before choosing any of these, it is worth checking whether a credit union, an arranged overdraft or help from your employer might work. If you are borrowing to cover other debts or everyday bills, speak to a free adviser first. This article is general information, not financial advice. StepChange, MoneyHelper and Citizens Advice can all help.
Your car may be repossessed if you do not keep up repayments on a loan secured against it.
