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Doorstep loans can be convenient, but expensive.
Are you wondering how doorstep loans work? Maybe you’re thinking that this might be a hassle free way to borrow, or perhaps you’ve already taken a doorstep loan out and you’re finding it difficult to repay what you owe. If you’re in one of these situations then this blog should help. Here’s how they work and what to do if you can’t repay what you’ve borrowed.
Make sure you borrow from a legitimate firm
There are lots of different ways to borrow money and doorstep loans, (sometimes known as home credit), are another way you might have heard of and be wondering about. A doorstep loan does exactly what it says on the tin. Someone will actually come round to your house with your money – known as an agent – and then your repayments will be collected by the agent, usually on a weekly basis.
There are some regulated doorstep lenders, the biggest and best known of which being Provident Financial. However, there are also some unregulated loan sharks that operate door to door as well, so the most important thing you need to do is make sure that you’re dealing with a legitimate firm. You can do this by asking to see proof that they are authorised by the Financial Conduct Authority – the financial watchdog. If the person on your doorstep can’t show you this authorisation, you shouldn’t borrow any money from them as they might be a loan shark.
You can report a loan shark on the Government’s website. If you are afraid you’ve fallen foul of one of these companies, you don’t have to worry about getting into trouble yourself – you haven’t done anything illegal and you should still report them.
Why do people get doorstep loans?
For some, there are attractions to this kind of borrowing. For example, it can prove easier to be approved for a doorstep loan than a loan with a conventional lender, if you have a poor credit rating.
Some doorstep lenders are willing to lend to you if you have a County Court Judgment (CCJ), are self-employed, unemployed or if you’ve been turned down somewhere else. So doorstep lenders do cater for those who would struggle to be accepted from a mainstream lender.
If you apply for a doorstep loan, someone will come round to your house and go through your income, outgoings and other financial commitments. So the idea of this face to face, personal service can be appealing for some borrowers as well.
Things to consider about this method of borrowing
Although this may appear like an easier way to borrow, there are downsides that you need to consider. The interest rates attached to these loans tend to be high – more comparable with shorter term payday loans for example. Because of this, it makes sense to make sure that no other, cheaper form of borrowing is available to you before you go ahead with it.
If you fall behind with your repayments, the agent will ask you to catch up, just as a normal lender would. There are usually no fees for missing a repayment with a doorstep loan but this is something to check first, before you sign up. If you still don’t catch up with your repayments, you might find that the agent stops coming round to collect your debt because the head office of the company will deal with it instead.
As with other types of lender, they will then send you letters about the outstanding amount and you may find that you are issued with a default if the situation continues for long enough. A default means that the agreement that you first signed with the lender has been broken. A default will show up on your credit history and damage it for six years from the date that you get it.
As with any borrowing, it’s important to shop around before you commit to a doorstep loan. You should also look closely at the interest rates attached and make sure you understand exactly how much you’ll be paying in total and how long it will take you to clear the debt.
What are the alternatives to a doorstep loan?
An authorised overdraft is one alternative to a doorstep loan. As long as you keep within the limit and don’t end up with any charges this might be cheaper. Just make sure you understand what your overdraft limit is, how and when you need to pay it back and that you don’t end up using an unarranged overdraft, as this can be very expensive.
Borrowing money from a Credit Union is also an alternative. Credit Unions are not banks – they are run by a certain group of people for the benefit of that group of people. For example, there are Credit Unions for the Police Force, NHS workers, the Fire Brigade and others that are available if you live in a certain town or city. You normally have to be a member of the union in question before you can borrow from them, and some require you to build up some savings with them first.
If you’re borrowing because you can’t afford to repay existing debts, this points to a more serious problem with your finances. You should get in touch with a trained debt advisor and talk about your options. It will be better for you in the long term to deal with the debts you already have, rather than borrow more and add to the problem. If you’re worried about any loans or other types of credit that you’ve taken out, you can get in touch with one of our professional debt advisors using the options at the top of the page.
by Christine WalshBack to blog home