Doorstep and home credit loans are one in the same thing, a way of lending money without having to apply to a bank, building society or credit union for a loan. Instead, loans are provided by home credit lenders who visit you at home to arrange the loan and collect payments.
How Do Doorstep Loans Work?
Home credit or doorstep loans are usually smaller than those offered by banks and building societies and can be anywhere from £50 to a £1,000 loan. Many of the people taking out these loans have poor credit ratings and, as a result, the interest rates lenders charge can be quite high compared to other forms of loans and even credit cards. Under UK law there is a maximum amount a lender can charge in interest.
You can also take out loans in the form or trading cheques or vouchers that can be used in certain shops; these are usually offered for soft furnishings or clothes and are repaid in the normal way. As with cash loans, interest rates can be quite high for cheques or vouchers.
Repaying Your Loan
Loan repayments are made directly to the home credit lender who visits you at home. Most lenders ask you to make repayments weekly or fortnightly.
If your credit agreement has errors in it or was not made correctly, you may not have to pay the loan back. The Financial Ombudsman Service can help you here.
Home Credit Regulation
Home credit lenders must be registered with the Financial Conduct Authority (FCA), and many are members of the Consumer Credit Association (CCA). If they aren’t registered with the FCA, they are operating illegally.
Illegal lenders are loan sharks. Borrowing money from a loan shark could put you at risk as they often take illegal action to collect their money if you are unable to make a repayment. This could include threats of violence or taking away your belongings.
If you aren’t sure if your lender is registered, you can look them up on the FCA website (www.fca.org.uk). It’s always good to check a lenders registration, even if they tell you they are registered.
Making A Complaint About A Home Credit Lender
If your lender behaves inappropriately, e.g. they visit your home and offer you a loan when you haven’t specifically asked them to, you can file a complaint. If your lender is a member of the CCA, you should make a complaint to the CCA first and then follow up with the Financial Ombudsman Service if you cannot resolve the issue. If they are not a member of the CCA, you should go straight to the Financial Ombudsman Service.
Alternatives To A Doorstep Loan
If you are considering taking out a doorstep loan because you need help paying your bills, there is a risk that you will end up further in debt because of the high interest rates. Before you take out a loan, consider talking to a debt advice charity such as Citizens Advice, who may be able to help you arrange a payment plan with existing lenders.
There may also be other credit options available, including:
- Credit unions: they offer low-interest loans and have been set-up with the aim of helping people through small, short-term loans.
- Overdraft: your bank may authorise an overdraft, which will have a lower interest rate than a doorstep loan.
- Increasing your credit card limit: again, the interest rates will be lower than a doorstep loan; as with all credit, you will need to make sure you can make your repayment.
- Budgeting loan: which are available from the social fund for people on benefits.
Things To Remember When You Take Out A Doorstep Loan
If you do decide to take out a home credit loan, you need to:
- Make sure you read your credit agreement before you sign it; if you aren’t sure what something means ask for clarification or seek a second opinion.
- Understand exactly how much you are borrowing, how long it will take you to pay it back and what your repayments will be.
- Confirm with the lender what will happen if you can’t make repayments, e.g. is your home or property at risk or are there any penalties?
Find out if you can overpay on your repayments in order to clear your loan earlier and, if you can, that there are no penalties or fees for early repayment.