Please note: High-cost short-term credit is unsuitable for sustained borrowing over long periods and would be expensive as a means of longer-term borrowing.
They're one of the most controversial forms of high-cost credit around, but do doorstep loans have any redeeming features?
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.
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.
Check before you borrowIf 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.
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