Car buyers warned of unpaid loans

  • Number of people using cars to secure loans on the rise
  • Buyers could be forced to pay off former owners loan
  • Using a car history check could spot potential problems

Used car buyers are being warned to carry out a history check before buying in order to make sure a car has no out-standing money secured against it.

Known as 'log-book loans', complaints to consumer charity National Debtline are up 15-20% each year since 2007 as more and more people get stung buying a car with a loan secured against it by the former owner.

If someone does buy a car with a loan still running against it, they could find themselves being chased by the loan company for the remaining money or have the car taken away.

Trading Standards has been calling for a ban on these sorts of loans for many years, but the Government has so far failed to introduce any legislation to stem the flow of cars being sold with out-standing finance against them.

"This demonstrates how important it is to get an AutoCheck, so you can reduce the risk of being innocently liable for debts taken out by someone else," said Jon Sheard from Experian AutoCheck.

"Logbook loans companies aren't obligated to pass details of loans that are secured against vehicles onto car data checking companies. However, if AutoCheck does not have the information, consumers are still covered by the £30,000 data insurance* in case they suffer any financial loss if they discover the vehicle does have a logbook loan secured against it."

The loans are secured on a law harking back to Victorian times. Known as the Bill of Sales Act, much less protection is offered to consumers compared to contemporary loans. If you take out a log-book loan then effectively you're handing ownership of the car over to the loan company.

Even if you then sell the car, the company still owns the car and will still expect the finance to be paid by the registered owner - regardless of whether or not he/she took out the loan.

*subject to terms and conditions