A doorstep or home credit loan is a type of financing where the lender collects the payments from the borrower’s home. A Doorstep Lender charges a higher interest rate and offers a lower loan amount compared to banks and credit card issuers.
You can get a home credit loan worth £50 up to £500 on a short repayment term. Your payments will be collected at your home on a set schedule (weekly or fortnightly).
How Do Home Credit Lenders Work?
Home credit lenders are not allowed to call or visit potential borrowers without their written permission. Take note that even if you have an existing loan with a doorstep lender, they cannot go to your house without advance notice.
When a home credit agent responds to your invitation, you need not sign up for a loan on the first visit. Lenders will give you enough time to review their offers. They will only visit you again if you have decided to proceed with the loan.
Your loan payments will be collected weekly or fortnightly from your house or via direct debit from your bank account.
What Are The Pros And Cons Of Getting a Doorstep Loan?
Convenient. Getting a home credit loan is not as complicated as traditional loans. The lender will show up at your doorstep after you send them an invite. You can easily access affordable loan amounts through agents who live and work in your area.
Low Risk. Home credit loan agents have a good understanding of their customers’ financial circumstances.
Most of them were previous doorstep borrowers so they are competent in assessing the financial needs and repayment abilities of their customers.
There will be less risk of borrowing an amount that you cannot afford to pay.
Flexible Payment Terms. The loan is not backed by any collateral and some lenders do not penalize borrowers for missed payments.
If you get into a financial crisis during the loan term, the agent will adjust the repayment terms.
High-Interest Rate. Doorstep loans cost higher than bank or credit card loans. The APR can reach up to 433%.
Although it is a convenient source of funds when you are in dire need, taking out a sky-high loan can double your financial trouble.
4 Simple Due Diligence Activities You Should Undertake
Before you take out a doorstep loan, it’s recommended to conduct a bit of due diligence work. The time you spend scrutinizing the conditions of the loan in an investment in the stability of your finances in the future.
4 simple due diligence when making your decision on the doorstep loan:
Check the Lender’s Background
Find out if the lending company is listed on the register of the Financial Conduct Authority (FCA). If the agent cannot present an FCA authorization or the company is not listed on the FCA registry, look for another lender.
Review the Loan Agreement
Do not sign up in haste
Go over the contract carefully – interest rates, loan term, repayment amount, and collection schedule.
Ask the lender about penalties for missed payments and early payoff. If you have the budget for it, consult with an attorney who specializes in overseeing loan agreements.
Make sure you check the interest rate, APR, installment amount, and total amount to be repaid. Are you 100% sure that you’re getting the best deal in the market?
To get the best offer, it is best to check different offers at the Lenders Compared website – an independent price comparison website where you can compare the costs of various doorstep loans.
Determine How Much You Can Afford to Pay
It’s best to err on the side of caution. If the payment term is not viable for you, it is best to consider other options so the loan will not tie you down.
3 Alternative Loan Options To A Doorstep Loan
Doorstep Loans come with a much higher interest rate. If you need money to bridge your cash flow quickly, consider the following financial solutions that cost less:
Credit Union. The maximum interest rate is 3% monthly or 42.6% APR. It is also easy to apply and get approval for a credit union loan.
Bank Overdrafts. Apply for overdraft protection with your bank. With this type of financing, you can still withdraw from your account even if it has insufficient funding. The interest rate is lower than the credit card, so it is a better short-term loan option.
Credit Card. A credit card loan is a less costly alternative. Just make sure to pay on time and stay within your credit limit.
A Doorstep Loan is a fast, easy, and convenient way to secure much-needed funding. The trade-off is having to pay higher interest. Borrowers in a dire situation might be compelled to take a Doorstep Loan to stop the “bleeding” now without realizing the financial wound might reopen in the future.
As with all loans, take the time to review the Doorstep Loan agreement and how the payments would affect your cash flow. Don’t bank on human nature or the possibility of the Home Credit Lender to empathize with your situation. In the end, it’s still business for them.