Not to put too fine a point on it, doorstep loans don’t have a great rep. So what exactly are they? How do they work? What are their pros and cons? And perhaps more importantly – if they’re best avoided, what are the alternatives? Here’s our overview of this widely-used line of credit.
Warning: Late repayment can cause you serious money problems. For help, go to moneyadviceservice.org.uk.
Please note: High cost short term credit is unsuitable to support sustained borrowing over long periods and would be expensive as a means of longer term borrowing.
What is a doorstep loan?
A doorstep loan is a short-term, unsecured personal loan where each transaction – from application, through issuing of funds to loan repayment – takes place on your doorstep. And just to clarify, “on your doorstep” doesn’t refer to your local high street or somewhere just up the road, but literally at the door to your residence.
What’s so bad about them?
Doorstep loans have taken a lot of flack, perhaps because they haven’t been reined in by the Financial Conduct Authority (FCA) in the same way that “payday” loans have.
In response to widespread concerns around high-cost, short-term credit, the FCA introduced a raft of measures to protect borrowers, such as a cap on the amount of interest that can be charged by lenders each day, and overall. For some reason however, what the FCA terms “home credit” (which covers doorstep loans) was specifically exempted from these new tighter rulings, leaving doorstep borrowers open to being treated like, well, doormats. The good news is that the FCA is currently looking into this situation, stating in May that it intends to “take action where we find harm.”
At the time of writing, however, borrowers that opt for a doorstep loan could still face eye-wateringly high interest rates and loans that can be rolled-over into new, larger loans multiple times, allowing debt to snowball.
What’s good about them?
Some people may like the convenience of home visits or may appreciate having their loan explained face-to-face. Doorstep loans are also one of a number of financial products that typically serve those with poor credit – eligibility may be more a question of how affordable the loan is than how good the individual’s credit score is (although eligibility criteria for doorstep loans may also take into account the access to the property – for example a block of flats with a buzzer at the ground floor could be a no-no). Doorstep loans are also popular with those who do not have a bank account.
How do they work?
Most doorstep loan companies let borrowers begin the application process online, but will want to meet face-to-face before – or at least at the point of – issuing funds. Loans are typically for amounts between £100 and £1,000 (but don’t expect to be approved for a £1,000 loan the first time you use a company), take a few days to be issued and are normally repaid in weekly instalments. Rates are generally fixed (so you’ll know in advance exactly how much the loan will cost overall) but are very high. An agent will visit you to collect the repayments at an agreed time each week until the original sum, plus interest due, has been repaid. Home visits are often sub-contracted to self-employed agents who live in the area.
What are the alternatives?
Doorstep loans can offer a fairly quick fix when you get into difficulty with finances, but should only be considered as a last resort. Before you apply for one, make sure you’ve considered other options. Is the expenditure you’re planning urgent and essential? If you’re struggling to pay a bill for example, you could try talking to your utility provider about a payment plan. There’s a wealth of free information on alternatives at the government’s moneyadviceservice.org.uk, plus sound advice on managing debt generally.
A couple of options that you might want to consider are listed below. It’s crucial to note however, that this is not an exhaustive list, and focuses more on financial products available to borrowers than on options like borrowing from friends/family or selling off assets.
- Credit builder credit cards. These credit cards have lower credit limits and higher interest rates than standard credit cards, but come with less-demanding eligibility criteria and are designed to help build/rebuild a positive credit history. In some cases, credit limits can be reviewed in as little as four months. This option is likely to take a little longer to arrange, but could provide a more practical long-term strategy. Learn more about credit builder credit cards.
- Guarantor loans. With a guarantor loan, a friend or relative of the borrower promises to repay the loan in the event that the borrower doesn’t. The guarantor will normally need to have a good credit score and a history of repaying debts on time. Learn more about guarantor loans.
- Logbook loans. Logbook loans must be secured against a vehicle, so if you fail to repay, you’ll lose your car. However, because the lender has a form of security, they are more likely to consider applications from borrowers with bad credit, and to lend larger sums.
- Online payday/short-term loans. High-cost, short-term credit including “payday” loans has also come under fire, but lenders have been forced to clean up their act following intervention by the FCA. This type of loan now has a maximum interest rate of 0.8% per day, and borrowers must never be asked to pay back more than twice the original sum borrowed. Unlike a doorstep loan, funds are simply transferred to your nominated bank account, and repayments collected automatically on prearranged dates. Learn more about payday/short-term loans.
- High street loan shops. High street lenders typically fall into the same category (high-cost, short-term credit) as online payday/short-term lenders, and are subject to many of the same restrictions.
If you do decide to take out a loan, whether from a doorstep loan company, an online payday lender, a high street money shop or elsewhere, make sure to check that the lender is authorised and regulated by the Financial Conduct Authority (FCA). It only takes a minute to search the register of authorised companies
Compare online payday/short-term loans
You can use the table below to estimate the costs for the loan that you have in mind from a range of popular online loan companies.
You should always refer to your loan agreement for exact repayment amounts as they may vary from our results.