With the media spotlight currently on payday lenders and the exorbitantly high interest rates they have been charging, today we are going to look at another form of short term lending, doorstep loans. Doorstep loans are often marketed to customers who would not necessarily qualify for loans from other lenders, for example people who have low incomes, are disabled, on benefits or who have very bad credit. Doorstep loans are sometimes known as home collected credit.
How Doorstep Loans Work
Doorstep loans are cash loans delivered to the borrower at home. The doorstep lenders employ agents who visit customer at home, fill in the paperwork and issue the loan. Repayments, which are usually made weekly are collected in cash directly from the customer at home. These loans are usually repayable over 20 to 52 weeks and payments are usually fixed so you will pay back a defined amount each week which will not change.
Affordability & Lending Criteria
Whilst doorstep lenders are usually not too concerned by bad credit history or previous defaults, one thing they must check by law is that the loan is affordable. This means that they must check that you are able to afford the repayments along with any current commitments and that meeting the repayments will not cause you financial distress or hardship.
How Much Do Doorstep Loans Cost?
Doorstep loans are an expensive form of credit and interest rates can run to 80% or more. The interest rate will vary depending on the lender and their rates must be transparent and clear. Ensure you understand exactly how much interest will be charged and how much you will be paying back in total before you sign the paperwork. Below is a typical example of how much a doorstep loan will cost from one lender. Remember each lender has different interest rates and this is just a guide.
Loan Amount/Period : £200 repaid over 20 weeks
Interest Rate: 50%
Finance Charge: £100
Weekly Repayment: £15
Total Amount Payable: £300
Considerations Before Taking Out A Doorstep Loan
Unfortunately doorstep loans are still the most available form of credit for those on low incomes, on benefits, unemployed and people with poor credit. Because they are repaid in weekly payments it is often tempting to ignore the total cost of credit in favour of convenience.
Doorstep loan agents are also salespeople, they are often put under a lot of pressure by their area managers to sell loans or lend additional funds to those who are already repaying loans. Whilst the new UK regulations on payday lending and home collected credit have improved the situation somewhat, some agents still report they are under increasing pressure to meet quotas.
If you have bad credit, are on benefits or have a limited income, it can be very tempting to turn to doorstep lending but they may be alternatives. Consider whether you could ask a friend or relative for help or check whether there is a credit union operating in your area. The ABCU (The Association of British Credit Unions) have a list of all their member unions on their website.
If you are on income related benefits for over 26 weeks and need essential items such as furniture, clothing or help with moving, you may qualify for a Budgeting Loan from the Social Fund. These are interest free loans which are paid back weekly. For more info visit https://www.gov.uk/budgeting-help-benefits/how-it-works
Ensure Your Lender is licensed
If a doorstep lender is not not licensed then he or she is a loan shark. Only deal with reputable companies and check their license details on their website before you enter into any agreement.
Your Lender Must:
Leave you a copy of the paperwork.
Leave you a payment book which clearly shows the amount of the loan, your weekly repayments
and how much you have to pay back.
Inform you of your right to change your mind.
Do an affordability check on you before a loan is agreed.
Sign your repayment book or give you a receipt for each repayment you make.
Be fully licensed as a doorstep lender.