What are doorstep loans?
Doorstep loans, otherwise known as home credit or home collected loans, are a small cash loan delivered right to your door. The lender will then visit your home to collect the repayments from you on a weekly or monthly basis. The lender's representative will usually visit your property as part of the application process, and if approved, you could have the cash in your hands the very same day.
This type of loan should only ever be considered as a last resort if you are in financial difficulties because of the high costs involved. Further down the page we will share with you some alternatives to borrowing that may work better for your current situation than a doorstep loan.
A doorstep loan is typically a short-term borrowing solution that lasts for a period of a few months, although it can be arranged to pay the lenders back over more extended periods. Types of loans like this are different from standard credit facilities because the lenders do not pay into your bank account. Instead, you get cash in hand upon your loan being approved. Borrowing like this has become particularly popular amongst those who don't have a bank account.
How do doorstep loans work?
When you apply to receive a loan from door to door lenders, they will first come to your home to fill out and assess your application. If you are approved, the doorstep lender will then deliver the cash straight to your door. The agent you met at this initial visit will be assigned to you throughout the term of the loan. They will be the ones that collect the repayments from you moving forward. They will also be there to help you understand the process from start to finish, providing answers to your questions and to collect the payments in person on the dates you agree to.
Most home collection loans now take applications online, but a local representative will always want to meet with you face to face before issuing any funds. Loans like this can be for amounts between £100 and £1,000. The time it takes to receive these funds can range from anywhere between 2 hours to a few days. After you have received the cash, you will generally be expected to pay the lender back in weekly instalments.
Repayment periods for doorsteps loans all depend on the agreement you come to with your lender. You will be able to decide a suitable length of time that suits both of you to make your repayments over. Depending on how much you choose to borrow, the period of time you have to make repayments for will vary.
Interest rates for doorstep loans tend to be high but should be fixed for the term of the agreement. Because of the high interest rate, costs involved with doorstep loans are expensive. The agent will continue to visit your home until all of the payments have been made in full, which includes the outstanding amount plus interest. The home visits conducted by the lender are often sub-contracted out to self-employed representatives who live locally to you.
Advantages of taking out a doorstep loan
When you consider taking out a home collection loan, make sure you take the following pros into account:
- You can do it all from the comfort of your own home - The most significant advantage of doorstep loans is that they literally happen on your doorstep. You don't have to leave your home to apply for one or make the repayments either.
- The waiting periods tend to be shorter - Unlike traditional loans, with a doorstep loan, you could receive funds on the same day as your application. If you are in a situation where you need the money urgently, not having to wait around the bank could be invaluable.
- Money is paid out cash in hand - You won't need to have a bank account to receive this kind of loan. It is paid out as a cash loan.
- Those with bad credit are still considered - Doorstep loans tend to have higher acceptance rates and often no credit check is needed, which makes them ideal for those with bad credit.
Disadvantages of doorstep loans
There are some real drawbacks that you need to be aware of before applying for or taking out a doorstep loan:
- High-interest rates - Doorstep loans are expensive due to having high interest rates because of the risk they pose to the lender of giving money to people with poor or no credit. This means you could end up paying back a significant amount of money in interest and costs, as well as the original loan amount.
- Someone has to visit your home each week - The process involves a representative visiting your home to go through your application. If this is successful, an agent will be visiting your home every week to take the repayments. Some might feel that this is an invasion of privacy.
- You have to be careful about the lender you choose - When you borrow from a bank or another well-known financial institution, they are authorised by the FCA so the risk is minimal. Some cash loan lenders operate without the approval of the FCA, leading them to take advantage of people in vulnerable positions. Make sure to do your research thoroughly before you accept any money from a doorstep lender.
- Large amounts of money may not be available - Doorstep loans are non-traditional in that they don’t require you to have good credit. Because of this, the amount of money you can borrow won’t be on the larger side like they would with a regular loan from the bank. If you are thinking of making a major purchase or need a bigger sum of money, you may need to seek out an alternative form of financing.
Alternatives to the doorstep loan
A doorstep loan should only be used as a last resort solution for borrowing because of the high costs that go along with them.
Alternative loan products explained
Guarantor Loans - A guarantor loan is when you ask a friend or relative to sign on to the agreement with you. If you cannot pay the money back, they take the responsibility on for you. To be a guarantor, you will usually need to have good credit and have a proven history of repaying debts on time.
Lines of Credit - You can apply for lines of credit or overdraft loans from lenders such as Safety Net Credit. An overdraft is attached to your current bank account and allows you to spend more money than you currently have. These types of credit tend to be for lower amounts and carry higher interest rates. The eligibility criteria have been designed to rebuild bad credit or for those who find it difficult to get credit from anywhere else.
Payday or Short-Term Loans - Following intervention from the FCA, payday loans have fallen into favour for those who are looking to borrow small amounts of money over shorter periods of time. Borrowers are no longer allowed to pay back more than twice the original rate they borrowed, with a fixed interest rate of no more than 0.8% a day. Unlike doorstep loans, a payday or short-term loan will be transferred into your bank account. Repayments will be collected automatically from this account too on prearranged dates.
Subscription Loans - A brand new way of borrowing to recently hit the UK are subscription loans. With this type of borrowing, you can get a set amount of loans per year and repay what you owe plus a membership fee. Subscription loans can help build your credit score even if you don't end up borrowing from them, and the cash is there on demand whenever you need it.
Pawnbrokers - This isn't the best solution if you are in a tight financial situation, but you can get cash quick if you have something valuable you are willing to pawn. A better idea may be to focus on budgeting or selling unwanted clothes and furniture on sites such as eBay and Shpock.
How to apply for a local loan?
After you know what the disadvantages are for this kind of loan but still think it's the best option for you, you should visit Lenders Compared. Here you can see a list of the best lenders in your area, whether you are looking for doorstep loans in Liverpool, London, Manchester or Leeds. They source the most local choices of getting a loan for you as quickly as possible. At Choose Wisely we see doorstep loans as a last resort loan. You should try and apply for a loan through our ‘Get Accepted’ journey to see if any lenders will accept your application without making an impact on your credit file.
Compare the price of home collected and other cash loans available in your area at www.lenderscompared.org.uk.
Doorstep loans FAQs
You do not need to own a property in order to apply for or receive a doorstep loan. They are a type of unsecured loan, so owning a home is not an essential requirement for them.
Doorstep loans are a type of borrowing that is designed for those with bad credit. Any application will be considered, no matter what your credit rating is. There are also options for those with poor credit other than doorstep loans such as guarantor loans which could be a cheaper solution to solve financial stress.
If your financial situation improves and you find you can pay off your doorstep loan earlier than agreed, this should be acceptable to your lender. Paying back a loan early means you could end up reducing the total amount of interest and keeps your repayments down to a minimum too. Do read the small print of the loan agreement, as you don’t want to be hit with early repayment fees.