What are doorstep loans?
A doorstep loan is a short-term, personal loan, repaid weekly to a loan agent who visits you at your home. Doorstep loans are typically suited for people who want to borrow smaller amounts, between £100 and £1,000.
Also known as home credit or home collection loans, this type of loan charges higher rates of interest, meaning they're more expensive than other loans.
How do doorstep loans work?
Doorstep loans work in a similar way to a bank loan. You can borrow money and pay it back with interest over an agreed time period. However, there are differences in how doorstep loans are provided and collected.
Here's how doorstep loans work:
- You'll start the application process online and get a 'decision in principle' which tells you whether you have been approved or rejectd.
- If accepted, an agent comes to your home to work out what you can afford to borrow and agree on a repayment plan. They'll need to check your proof of ID, address and income.
- If the loan agent is happy to process, you may get the cash immediately, or within 24 hours, so there's no need for a bank account.
- Typically you'll repay the loan over a short period, up to 12 months. The loan agent will return weekly to collect your loan repayments in cash.
Can I get a doorstep loan with bad credit?
It depends, getting a doorstep loan if you have a bad credit rating is possible but not always guaranteed.
To better understand your situation, a loan agent will visit you in your home, go through your finances with you and agree on a repayment plan that you can manage.
How much does a doorstep loan cost?
Doorstep loans can be one of the most expensive ways to borrow money because lenders view people who use doorstep loans as riskier to lend to.
Interest rates of doorstep loans are very high compared to standard loans, and the APR (Annual Percentage Rate) can often exceed 1,000%.
Here's an example doorstep loan cost:
Rate of interest 65% fixed. Representative APR 433.4% APR.
A loan of £300 repaid over 33 weeks at £15.00 per week will cost you £495. This is made up of £300 for the loan value and £195 paid in interest and other loan fees.
Cheaper loans are available, but doorstep loans are one of the few options available for people who don't have a bank account or have very bad credit.
Do I qualify for a doorstep loan?
- Over 18 years of age
- A resident in the UK
- In reciept of regular income
Most doorstep lenders won't lend to you if you've been declared bankrupt, or had a Debt Relief Order or an Individual Voluntary Agreement in the last six years.
How do I apply for a doorstep loan?
Applying for a doorstep loan used to be a face-to-face process from start to finish, however, many doorstep lenders now advertise their loans online, so the first step is often to fill in a form on a lenders website.
Once you've checked the interest rates of a doorstep loan and worked out how much you can afford to borrow, your doorstep loan application will take a few minutes to complete.
A decision in principle is given quickly, and a loan agent will contact you to arrange a convenient time to visit you to complete the application in your home.
The loan agent will need to carry out an affordability assessment, so be prepared to provide evidence of any income and outgoings where possible.
What documents do I need for a doorstep loan?
For the home visit, you'll need to provide documents to prove your identity and show evidence you can afford to repay the loan over the agreed timeframe. The type of documents you'll need are:
- Proof of identity: e.g. passport, driving licence, birth certificate
- Income evidence: e.g. wage slips, benefits, pension or HMRC documents
- Outgoings evidence: e.g. rent book, council letter, mortgage statement, utility bills, credit agreements
What are the pros and cons of doorstep loans?
A doorstep loan can be appealing if you need cash quickly but have difficulty being accepted for credit with other direct lenders or banks. However, doorstep borrowing can have its downsides, so it’s important to weigh up the pros and cons before applying.
- Quick and convenient
- Cash in you hand
- No bank account needed
- Available even if you have a bad credit rating
- Very high interest rates
- Fees & charges
- Limited to small loan amounts
- A loan agent will visit your home regularly
What are the alternatives to doorstep loans?
Credit union loans
If you’re a credit union member or belong to a community with a credit union, it could be worth checking if they’d be willing to lend money to you. A credit union typically charges lower interest rates on their loans than doorstep loan providers.
A credit union will need to perform a credit check and assess your affordability but they usually have more flexible lending criteria than a bank or direct lender.
Guarantor loans are a type of loan where someone else guarantees that the loan repayments will be made if you can't honour the loan yourself.
The loan terms are the same as a personal loan, but both you and your guarantor will have to have affordability and credit checks performed. This type of loan typically has lower interest rates if your guarantor has a good credit rating, because ultimately they will have to repay the loan if you are unable to.
If you receive benefits such as Income Support or Pension Credit for six months or more and need to borrow money to buy essentials, you could be eligible for an interest-free budgeting loan from the government. If you're on Universal Credit, you may qualify for a Budgeting Advance.
It's advisable to contact your benefits office before taking out a doorstep loan if you're in financial difficulty, because there may be help available to you.
Credit building cards
A credit builder card is worth considering if you need to borrow a small amount of money to make a purchase but you have a bad credit score. These cards have low credit limits and lower interest rates than a doorstep loan.
Bear in mind you must repay the balance on time and in full every month to build your credit score. If not, you could damage your credit score further and face penalties.
Doorstep loans FAQs
A doorstep loan will impact your credit score if your application is successful. If you repay the loan in full and on time, a doorstep loan could boost your credit score, but if you miss payments or regularly pay late, a doorstep loan could harm your credit score.
Doorstep lenders must be authorised by the Financial Conduct Authority (FCA) and ideally belong to the Consumer Credit Association (CCA).
Always make sure a money lender is FCA authorised before applying for any type of loan. You can do this by checking if a lender is on the FCA register.
Possibly, but there may be better options than a doorstep loan.
If you don't have a steady income, you may struggle to make the repayments and end up in a worse financial situation.
You can, but check the loan agreement and talk to your loan agent about what an early settlement may mean for you. You could be entitled to an early settlement rebate which will reduce the overall cost of the loan.
APR is short for Annual Percentage Rate. It’s a calculation of the overall cost of your loan and takes into account all the costs during the term of the loan including set up charges and the interest rate. Any extra fees are added to the loan amount before interest is calculated.
Doorstep cash loans are typically designed for borrowing between £100 and £1,000, however, if you have a bad credit score or your income is low, you may not get the full amount you apply for.
When the loan agent visits you at home, they'll determine what you can afford to borrow and create a payment schedule to suit you.